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HMRC Guidance

David Reid
17th Apr 2009

Recently, HM Revenue and Customs (HMRC) published further guidance on providing non-cash benefits during Statutory Maternity and Adoption Leave, focusing on Tax and National Insurance issues that could arise if non-cash benefits (but not cash earnings) are given to an employee during Statutory Maternity or Statutory Adoption leave.

 

The new guidance makes no attempt to address the controversy that has arisen following HMRC’s earlier guidance around the question of an employee’s entitlement to non-cash benefits under a salary sacrifice arrangement during maternity leave or adoption leave.

 

The guidance (which is useful if your company provides such benefits to employees) can be accessed here.

 

Previous guidance on this issue had been published in May 2008. The previous guidance remains useful, and can be accessed here.

 

The new guidance makes no attempt to address the controversy that has arisen following HMRC’s earlier guidance around the question of an employee’s entitlement to non-cash benefits under a salary sacrifice arrangement during maternity leave or adoption leave.

 

For employers who provide employees with such benefits (for example, childcare vouchers or pension contributions) by way of a salary sacrifice arrangement (which has certain tax advantages) it is not clear whether or not the sacrifice should be treated as part of wages or salary, or as a non-cash benefit.

 

In the original guidance, HMRC expressed the view that childcare vouchers were 'non-cash benefits' rather than 'remuneration' even if they had been provided by way of salary sacrifice. As a result, the value of the childcare vouchers should not be included for the purpose of calculating Statutory Maternity Pay. The employee is, therefore, entitled to the childcare vouchers during her maternity leave period in addition to Statutory Maternity Pay as no deductions can be made from this. This may have a significant cost implication for employers.

 

In light of this, many employers may consider that such potentially costly arrangements may need to be reviewed. If an employee has a contractual right to salary sacrifice then there will be a breach of contract, should an employer, as a result of HMRC guidance, wish to change any such contractual benefits without the express agreement of the employee.

 

While it is true that a number of commentators have taken a different view to that of HMRC, it remains to be seen whether or not the tribunals and courts will follow HMRC’s guidance on the matter.

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