Hitherto, independent schools have been able to offer staff the opportunity to save some of the cost of the school fees relating to their own children’s attendance at the school via salary sacrifice arrangements.
In March 2016, the government indicated it was considering introducing restrictions on the use of salary sacrifice schemes. From August to October 2016, HMRC consulted in relation to proposed restrictions on the use of salary sacrifice for the provision of benefits in kind.
On 23 November 2016, in the Autumn Statement, the Chancellor confirmed that existing tax relief on salary sacrifice arrangements would be scaled back from April 2017.
The only schemes which will continue to benefit from tax relief through salary sacrifice from April onwards will be: childcare benefits, cycles etc under cycle to work schemes, enhanced employer pension contributions to registered pension schemes, and ultra-low emission cars.
This means that no new salary sacrifice arrangements in relation to payment of school fees will be permitted from 6 April 2017 onwards. However, existing salary sacrifice arrangements in respect of school fees will be protected and permitted to continue until 5 April 2021, at which point they will cease.
There is a short window within which to implement a salary sacrifice arrangement in respect of school fees for staff children. Any such arrangements will only run until April 2021. Any school wishing to take advantage of this limited opportunity to provide such benefit to staff must act by 5 April 2017, by issuing the employee with a Statement of Changes which clearly sets out variation to the terms of employment including at least:
- The reduction in remuneration
- Explanation that there will be a resulting impact on other aspects of the employee’s entitlements e.g. pension contributions, sick pay etc. and National Insurance contributions
- Explanation that the variation represents a permanent change (although HMRC has indicated that arrangements which are stated to run for at least 12 months should suffice).