Last November, in his Autumn Statement, Philip Hammond announced that so-called “salary sacrifice” schemes were to be significantly trimmed back. The chancellor called them "unfair," because they allowed some employees to end up paying much less tax on benefits in kind – those that are given on top of a salary – than others.
For those unfamiliar with salary sacrifice schemes, they allow employees to pay for a benefit of some type before they pay National Insurance and, sometimes, income tax.
Assuming the individual would have bought the item anyway, this means they ultimately save money, as they only end up paying National Insurance and tax on what remains of their gross salary.
What are the new rules HR needs to be aware of?
The new rules mean that, by and large, employees can no longer avoid paying tax on things bought via a salary sacrifice scheme, but that they will still save on National Insurance. This, of course, is bad news for employees who may have stood to take advantage of such schemes, limiting the savings that can be made.
Among the benefits that have historically been offered by way of salary sacrifice schemes but that have been pared back or removed as options altogether are things like car-parking close to a workplace, mobile phones and gym memberships. There are, however, some benefits that are exempt from the new rule changes, including pensions, childcare, ultra-low emissions cars and cycle to work schemes.
Cycle to work
It’s this last benefit that is pertinent to me. As the founder and director of a cycle to work scheme provider, I’m naturally relieved that they’ve kept their full salary sacrifice status on a personal level, but I’m more pleased because, like the other exemptions mentioned, they offer genuine value to society.
Cycle to work schemes operate on the premise that employers buy bikes or cycling equipment for use by their employees, with employees hiring them from their employer over an agreed period.
Instalments are paid on a weekly or monthly basis and, at the end of the hire period, the employer can keep the bike or equipment for use by other employees, or, more commonly, transfer ownership of the goods to the employee at a final, one-off, “fair market value” cost.
Cycle to work schemes: what are the benefits?
The big benefit of this to employees, of course, is that they can get their hands on a brand-new bike for less money than would otherwise be possible and without having to pay out a big initial outlay.
Employers, meanwhile, can take advantage of being able to attract and retain staff with a popular employee benefit, of paying less in the way of Secondary Class 1 NICs and of improving the health of their workforce, thereby improving morale and productivity too.
But it’s not just employers and employees that benefit. One of the reasons, no doubt, that cycle to work schemes have remained exempt from the new salary sacrifice rules is exactly because they benefit society as a whole.
As the government will gladly tell you, they help to make us healthier and more environmentally-friendly en masse, reducing the pressure on healthcare services and taking cars off the road.
Increased demand in the market
As you might imagine, as a cycle to work scheme provider, we’ve seen demand increase since April. I can’t speak for other providers, but many companies looking for employee benefits that we’ve spoken to have, inevitably, found their options more limited.
Some have felt that the pared back salary sacrifice benefits that are still available no longer offer as much value as alternatives, while others think they now simply aren’t attractive enough now in their own right.
No doubt it’s not just cycle to work schemes that are seeing increased demand either. As the new rules have restricted what is available by way of salary sacrifice, all other employee benefits available have become more attractive, relatively speaking.
As a result, there is currently more opportunity in the market for employee benefits providers of all types, but also more competitivity, as providers compete to suck up what new business is available.
What we have also found interesting, though, is that many companies are approaching us with just savings for their employees in mind. While the new rules have generated an influx of new interest, they are also requiring that we educate many of those who approach us more broadly about the cycle to work scheme and its benefits.
A side-effect of the increased demand, for us at least, has been a realisation that there is less common knowledge about the scheme than perhaps providers have realised, even among HR and employee benefits professionals. For us, being made aware of and addressing that issue could be the biggest impact of all that the salary sacrifice rule changes ultimately have.