Grocery schemes – an update
HMRC’s December employer bulletin contains an important warning about grocery salary sacrifice schemes.
Further to our blog earlier this year sharing our thoughts about salary sacrifice for grocery schemes, the following warning has been issued by HMRC in their December employer bulletin. This was first published on 10 December but subsequently updated twice to add some useful clarification that the purported savings are employee National Insurance and around the use of cards as well as vouchers; as well as then to change a legislative reference. We have reproduced the text from the 22 December employer bulletin in full below:
Clarifying the optional remuneration arrangement rules at section 228A Income Tax Earnings and Pensions Act (ITEPA)
HMRC are aware of third-party scheme providers advertising salary sacrifice schemes, such as grocery vouchers, which incorrectly claim they can make savings on employee National Insurance contributions, with HMRC approval. HMRC does not approve businesses to advertise their schemes as tax compliant.
While a third-party provider may present a scheme as tax-efficient, ultimate responsibility for tax and National Insurance contributions rests with the employer. Therefore, employers must independently verify scheme compliance with regulations.
The optional remuneration arrangement (OpRA) rules, introduced in April 2017, largely removed the tax and National Insurance contributions advantages for benefits provided through salary sacrifice arrangements.
This was to address the use of these arrangements where employees agree to give up a portion of their earnings for a benefit, resulting in lower income tax and National Insurance contributions compared to receiving the full amount in cash.
Section 69A ITEPA explains a benefit is provided under OpRA if an employee gives up current or future taxable earnings for a benefit, or enters any agreement to receive a benefit instead of earnings.
Where vouchers are provided under OpRA, the amount that is taxable is the higher of the:
- amount of earnings given up
- amount of money for which the voucher can be exchanged if it is a cash voucher
- cost of providing the voucher if it is a non-cash voucher
Further guidance on OpRA including general exclusion from exemptions is available.
National Insurance contributions implications
Non-cash vouchers provided through salary sacrifice, where the employer facilitates provision, are treated as earnings under National Insurance contributions legislation and attract both employee and employer Class 1 National Insurance contributions. This includes the provision of vouchers, pre-loaded cards, other credit tokens, or company credit cards, more information is within the National Insurance Manual at NIM02413 - Class 1: Vouchers - non-cash vouchers - definition
Arrangements not meeting specific exemption requirements in Schedule 3 of the Social Security Contributions Regulations 2001, will be subject to Class 1 National Insurance contributions for both employer and employee.
Further support is available by contacting the Employer Helpline.
This update and clarification is welcome. We are working through what this might mean for employers and employees and will post any updates to our website.
