October 2009:
Threat to salary sacrifice
Prime Minister Gordon Brown has announced that the Government will scrap tax and National Insurance Contribution exemptions for childcare vouchers provided by an employer. In its place, he is offering free childcare for 250,000 two-year-olds.
In his keynote speech to the Labour Party Conference in Brighton on 29 September, the Prime Minister said that from April 2011 employees who join an employer-supported voucher scheme will not be entitled to the existing exemptions. This will have a major impact on salary sacrifice schemes, casting doubt over the future of what had been a popular employee benefit, saving employers thousands of pounds.
The announcement caused concern among working parents and payroll managers. Jeanette Hibbert, payroll manager at Kerry Group, said: ‘It will mean that almost all employers will have to scrap the schemes. Instead of the employers’ NI savings funding the admin fees involved, the employer will lose those savings as well as the employee – and be charged the admin fee on top, which is usually 3% to 5.5% of the childcare voucher total value.
‘If this comes into force it will be at a time when we are all still recovering from the recession, and will be expensive to run. From an employee’s perspective, usually child-care payments are split: the allowable amount of £55 per week is paid through vouchers and the rest is paid privately. Why would staff continue to do this with nothing to be gained from it? There is also the consideration that this benefit is what allows both parents to go to work - how will the loss of the extra £70 to £90 per month saving affect those already on the bread-line?’
Mr Brown announced the funding would instead go towards free nursery places for two-year-olds so that 250,000 children will benefit by 2015-16. ‘I am proud to announce today that by reforming tax relief we will by the end of the next Parliament be able to give the parents of a quarter of a million two-year-olds free childcare for the first time.’
The Department for Children, Families and Schools said that exemptions for workplace nurseries will remain unchanged. Further details will be announced in the Pre-Budget Report.
The shock announcement bears a strong similarity to the unexpected removal of tax exemption from the Home Computer Initiative, ended in the 2006 Budget. At the last Payroll World conference, however, Kate Upcraft warned that, such was the popularity of salary sacrifice schemes and the growing size of the budget deficit, that some exemptions were likely to be ended.