Employer spending on taxable benefits for staff reaches record high
Employers are providing a greater value of taxable benefits to their staff than ever before, according to new figures from HMRC – but significant changes to salary sacrifice schemes mean many perks may soon become impractical, experts have warned.
Provisional figures for the 2016-17 tax year suggest that the total taxable value of benefits provided by UK employers reached £8.3bn, up from £8.1bn in 2015-16. In 2014-15, it stood at £7.6bn.
However, the number of people receiving benefits this year decreased to 3.66 million, from 3.76 million in 2015-16, according to the Benefits In Kind Statistics report.
Private medical and dental insurance was the most widely received benefit among UK employees, used by 65 per cent of those receiving benefits, followed by cars (26 per cent) and excess mileage allowance (6 per cent).
However, changes to salary sacrifice schemes mean this could represent a high watermark for benefits. Since April 2017, tax advantages have been removed from a range of perks normally purchased through payroll schemes, including health checks, gym memberships, parking and accommodation, as well as most company cars.
Andrew Snowdon, head of tax at UHY Hacker Young, said these amounted to ‘stealth taxes’ on the decreasing number of people enjoying taxable benefits.
“Despite many employees not seeing a rise in the headline rate of tax in the last few years, they are seeing an increase in these stealth taxes,” he said.
“It seems that HMRC has an irresistible desire to tax job perks – everything from late night taxis home from the office through to gym membership or health checks are now taxed.
“Work perks are a good way for businesses to recruit and retain the best talent. But as HMRC ratchets up tax rates on some perks, there will soon come a time where the size of the tax bill outweighs the benefits.”
Experts have speculated that the most recent changes to salary sacrifice could prompt employers to cut back both the range and size of benefits on offer. In particular, the HMRC report suggested that tax changes affecting company cars may already be impacting on the value of benefits provided.
Since April 2017, drivers using a new company car have been taxed the higher sum of either the benefit in kind value of their car, or the value of their cash alternative.
Drivers of existing cars and those who ordered a car before the change will remain on the previous tax arrangements until April 2021.
However, low-emission cars are exempt from the tax, supporting a dramatic increase in the overall energy efficiency of company cars in the last 10 years, with 97 per cent of fleet vehicles in 2015-16 emitting less than 165g/km of CO2, compared to 42 per cent in 2002-03.
While the overall number of people receiving workplace benefits increased slightly in 2015-16, the trend of higher-income earners receiving higher-value benefits in kind persisted. The report highlighted a direct correlation between the average value of benefits and increasing income, among both employees and company directors.