Guide to Finance Act 2015 (Relevant Salary Sacrifice)

This piece of legislation went under the radar a little bit at the time because it didn’t actually come into force until April 2016 and so got lost in the focus that was on the Travel and Subsistence rules also coming in at the same time.

The Finance Act 2015 introduced an exception for employees in respect of certain business expenses, however these expenses could not form part of a salary sacrifice scheme or comparable arrangements.

289A Exemption for paid or reimbursed expenses

1. “Relevant salary sacrifice arrangements”, in relation to an employee to whom an amount is paid or reimbursed in respect of expenses, means arrangements (whenever made, whether before or after the employment began) under which –
2. the employee gives up the right to receive an amount of general earnings or specific employment income in return for the payment or reimbursement, or
3. the amount of other general earnings or specific employment income received by the employee depends on the amount of the payment or reimbursement.

The Impact

Prior to the Finance Act 2015 business expense could be claimed against tax through a P11D or dispensations that were given out by HMRC. On the recommendation of the office of Tax Simplification these were replaced with a simple exemption. However, the act also added a restriction to this exemption, that restriction being in the cases where salary sacrifice arrangements are in place. These are referred to as ‘Relevant Salary Sacrifice’.

Since many intermediaries used a model that fails the new relevant salary sacrifice test, the legislation triggered a need to create new models that ensure salary sacrifice is not utilised.

The Result

Umbrella’s must adopt a new expense model that is compliant with these regulations. In some instances, these changes mean that there is no option to claim varying expenses which are connected to work duties. This could mean that workers see a cut in their take-home pay since they no longer receive tax relief against their expenses.

The Solution

Umbrella Mileage-only model – The mileage allowance sits outside of the of the Relevant salary Sacrifice rules meaning that it can still be accessed if workers are not caught by SDC (or the right of) or were classed as a mobile worker.

Umbrella no-expense model – tried and tested, uplifted-rate PAYE without the need to worry about expense claims.