Experts in accounting suggest that the chancellor may scrutinize employee benefits such as salary sacrifice pension schemes and electric vehicle leasing initiatives in the forthcoming autumn budget.

Following two recent surveys published by HM Revenue & Customs, speculation regarding potential changes has increased. One survey aimed to assess employers’ responses to proposed modifications to salary sacrifice pension schemes, while the other sought to evaluate the prevalence of companies offering employee benefits, including company cars and cycle-to-work programs.

The government’s fiscal flexibility has been further constrained since Rachel Reeves presented her spring statement at the end of March. Ongoing domestic inflation coupled with economic pressures from international trade disputes has resulted in rising bond yields, thereby escalating government borrowing costs. As a result, there is a mounting belief that Reeves may need to implement tax increases to stabilize finances in the autumn budget.

Salary sacrifice pension schemes allow employees to allocate a portion of their salary to their pension contributions, which employers match instead of paying directly to the employees. This arrangement enables both employees and employers to benefit from reduced tax liabilities, as sacrificed amounts and corresponding pension contributions are exempt from income tax and national insurance obligations.

Feedback received from employers indicated that any alterations to pension schemes could deteriorate employee morale. Among the scenarios proposed by HMRC, businesses indicated that the most palatable option for their staff would be to maintain national insurance exemption for salary sacrifices up to £2,000 annually, with contributions above this threshold subject to national insurance.

For benefits in kind, employees can convert a segment of their salary each month in exchange for items such as electric cars, bicycles, or parking permits. Because these amounts are deducted before income tax and national insurance calculations, both employees and employers enjoy savings on their contributions.

HMRC’s second survey revealed that benefits in kind are predominantly offered by larger organizations, with 26% of medium and large companies providing such benefits through salary sacrifice schemes.

Caroline Harwood, head of employment tax at BDO, noted, “It’s understandable why the chancellor might consider reviewing the tax reliefs related to pension salary sacrifice schemes.” She referenced the latest statistics showing that the cost of national insurance tax reliefs from registered pension scheme contributions reached £23.5 billion last year, while income tax reliefs amounted to £28.5 billion.

Nonetheless, Harwood believes there may be “other, more accessible avenues for generating additional revenue” if the government opts for tax increases.

A government representative characterized discussions about modifying salary sacrifice schemes as “purely speculative,” emphasizing, “We are dedicated to maintaining low taxes for working individuals, which is why we protected their payslips during last autumn’s budget and upheld our commitment not to raise the basic, higher, or additional rates of income tax, employee national insurance, or VAT.”