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Tax-free benefits set to be restricted by the Chancellor

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Phillip Hammond is expected to announce cuts to 'salary sacrifice' perks such as gym membership and company cars. With Theresa May announcing her plans to improve the UK's productivity, are the government cutting one of the main drivers of increased productivity?

In the upcoming Autumn Statement, it is expected that Phillip Hammond is set to restrict tax-free “salary sacrifice” benefits. 

The cuts could affect perks such as regular health checks, gym membership and company cars and parking. A government consultation has already said that pensions contributions, childcare and cycle-to work schemes will not be affected. 

Tax-free benefits allow employers to pay less in national insurance contributions, while employees reduce their income tax bills. Both parties would have pay some contribution towards the continuation of these benefits. 
Mark Groom, employment tax partner at Deloitte said: “The proposals will in fact go further than salary sacrifice, and are intended to apply wherever a benefits has been obtained instead of cash in any circumstances including, for example, cash alternatives, flexible benefits allowances and simple trading-up of benefits.”

Earlier today, Theresa May outlined her plan to generate greater productivity in the UK workforce. Restricting these benefits may prove to be detrimental to her plans.

Tom Catsley, VP EMEA at Xactly said: “Phillip Hammond’s proposal to restrict tax-free benefits could be very disadvantageous for businesses’ productivity. Both financial and non-financial rewards are vital for keeping workers motivated. Psychologist Frederick Herzberg has argued that salaries are a maintaining factor, that get people to work every day; rewards and perks are what motivate them to be engaged and productive, ultimately increasing profitability.

“Businesses should be encouraged to use rewards to motivate their staff. Benefits like tax-free gym membership give employees the opportunity to personalise their package at work. Companies should also look to offer variable pay to reward great performances. Ultimately, the Government should be supporting, rather than limiting, businesses in engaging their workers, if we are to improve the UK’s productivity. Restricting tax free incentives is likely to be a false economy.”

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