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Vehicle tax specialists at Deloitte have warned employers to ensure that salary sacrifice schemes are correctly structured and implemented, following a legal brawl between Reed Employment and HMRC.
The case concerned employees who were working for clients on a short-term basis and receiving travel and subsistence allowances from which income tax and national insurance were not deducted.
The employees' salaries were reduced to reflect the benefits paid, but the case ruled this was not a suitable measure and that income tax and NI should have been paid. It also ruled that system was not communicated clearly enough to employees.
Deloitte Car Consulting director Nathan Male said: "This case is a timely reminder to employers to ensure all salary sacrifice arrangements are correctly structured and effective for employment tax purposes.
"We are currently seeing an increasing number of employers implementing salary sacrifice arrangements due to the benefits available to both employees and employers. This case does, however, demonstrate the need for employers to structure schemes correctly to avoid the problems illustrated by the case."
Male also said some employers believed that individual salary sacrifice arrangements received blanket approval from HMRC but that this was not the case.
Mike Moore, also a director at Deloitte, said employers could benefit from revisiting their employee communications and payslip designs to make sure they were clearly explaining how a salary sacrifice scheme operates.
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