In the 2016 Autumn Statement the government announced that as of the 6 April 2017 the Income Tax advantages for many benefits funded through salary sacrifice will be removed. Kevin O’Neill, Head of Health at Barnett Waddingham, explains outlines the detail for employers.
When the draft legislation was published, no guidance was given to the impact on Group Income Protection and excepted Group Life schemes offered as a flexible benefit, funded by salary sacrifice. This led the industry to believe these benefits were exempt from the new rules, however this is not the case.
At a high level we understand the impact from 6th April 2017 is as follows:
Group Income Protection
- Where an employee increases their cover, the additional level funded through salary sacrifice will be subject to taxation and employers National Insurance.
In addition, employees receiving group income protection benefits will find themselves taxed on both the benefit received and the premium paid if they have increased their cover.
Excepted Group Life Assurance
- As this falls outside pension legislation, it will be treated as a taxable benefit and subject to employer’s National Insurance should an employee increase their cover funded through salary sacrifice.
- It is worth bearing in mind, registered Group Life Assurance schemes are exempt from this change as they are governed by pension legislation.
Whilst it is disappointing that Government has not applied tax exemption to these benefits, we will seek to work with our clients to review policies to provide the best outcome for them and their employees.
Benefit in kind revaluation
A call for evidence and consultation on reviewing the value of taxable benefits has been announced in the Budget 2017 and Barnett Waddingham will fully participate in this. We will advise of any impact on Group Insurance products when the results of the consultation become clear.