Changes to salary sacrifice are ‘firmly on the government’s agenda’ according to a leading pensions expert, following HMRC research on this issue.
HMRC has today published research conducted among employers, looking at their attitudes towards salary sacrifice and how they might should this benefits be scaled back.
LCP partner and former pensions minister Steve Webb says it was “very revealing” that HMRC had paid for this research.
“This research suggests that changes to salary sacrifice are firmly on the agenda, and likely to be considered as a potential revenue-raising measure,” he said.
The research — Understanding the attitudes and behaviours of employers towards salary sacrifice for pensions — was commissioned by the last government.
As well as asking general questions about attitudes to salary sacrifice it tested employer reaction to three different ways that the benefit could be cut back. The options were:
- removing the national insurance exemption for employers and employees, resulting in employer and employee NI charges on the salary that the employee sacrificed.
- removing the NI exemption for employers and employees, and the income tax exemption for employees, on the salary sacrificed.
- removing the NI exemption but only on salary sacrificed above a £2,000 per year threshold
HMRC found employers were positive about salary sacrifice and thought it helped to retain employees as part of the overall benefits package. Some said they passed on the employer NI saving to their employees, but for others it was simply absorbed by the firm as a reduced employment cost.
In terms of the changes employers were, not surprisingly, most negative about the second option, which involved removing both NI and tax breaks for salary sacrifice.
Some employers said that this would eliminate the benefit of operating salary sacrifice and were unsure that they would continue to offer this option.
The most favourably viewed reform was one where salary sacrifice would be capped, but allowed for smaller amounts of sacrificed salary.
The fieldwork was undertaken in May-August 2023 and involved interviews with 51 firms, 41 of which offered salary sacrifice and 10 of which did not, but it has only just been published. This was before the current increases to employers national insurance.
Webb adds: “Although the research was commissioned under the previous government, the desire to raise additional revenue is, if anything, even more acute today. With a Chancellor reportedly looking to make up a multi-billion pound hole in the public finances in her Autumn Budget, this research suggests that changes to salary sacrifice are firmly on the agenda, and likely to be considered as a potential revenue-raising measure”.
