Cycle-to-Work Schemes - Issues raised by HMRC Benefits and Expenses Sub Group

Written by Ian Congreave - Filed under: Salary Sacrifice on November 17th, 2008

As reported in an earlier newsletter, the minutes of the 17 April 2008 meeting of HMRC’s Benefits and Expenses Sub Group reveal that there is a potential problem for some salary sacrifice schemes if they do not satisfy all of the statutory conditions on which their respective tax or NICs exemption depend. For example, the tax exemption that makes the “cycle-to-work” schemes possible requires that the scheme is made generally available to all employees. If specific groups of employees are excluded from the scheme, the exemption is not met and HMRC’s view is that the salary sacrifice scheme fails, with expensive consequences for the employer.

The sub-group discussed issues relating to the exclusion of employees under the age of 18, who may be excluded from the scheme because of consumer credit restrictions, and low-paid employees who are excluded because a salary sacrifice would take their earnings below the national minimum wage.

As shown by recently-published minutes of a later meeting on 17 July, it was pointed out that the problem is caused by external restrictions – legislation that prevents employers from making the scheme available to certain employees. The suggestion was made, not by HMRC representatives, that the scheme rules could be worded so that the scheme is made available to all employees “insofar as the law provides for employers to do so”. The HMRC representatives agreed to consider the issues further and provide some clarity in future guidance.

Among the various subjects discussed at the meeting, HMRC confirmed that, where expense payments included within a dispensation are set at a particular amount. e.g. scale rate payments, the amount may be uprated annually by the employer without the need to seek HMRC’s agreement, as long as the annual increase is equal to or less than the annual increase in the Retail Prices Index (RPI) for the same period.

Further information:
Benefits and Expenses Sub Group - Minutes of Meeting 17 July 2008

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Written by Ian Congreave -

Filed under: Salary Sacrifice on November 17th, 2008