Fringe benefits How the Chancellor’s proposals could affect you

Q What is salary sacrifice? A Employers give staff the option to swap part of their wage for a non-cash benefit. As a result of having a lower salary, employees pay less income tax and make lower National Insurance contributions. Likewise, employers save on National Insurance as this is linked to salary. Popular benefits include pension contributions, meeting childcare costs, bicycle schemes and medical insurance. In recent years company cars, health screening, gym membership and mobile phone contracts have become more common.

Q Why is salary sacrifice under threat? A As more companies adopt salary sacrifice arrangements, less tax is collected. Plus the schemes are rising in popularity, increasing by a third in the last five years. The Government consulted on changing the rules in August and will announce its decision next week.

Q Which benefits will be cut? A Mobile phone contracts, gym memberships, health checks and company cars are all set to lose their tax relief status. So are benefits such as televisions, white goods and even wine, which are offered by some firms. However, pension contributions, childcare benefits and the cycle to work scheme are exempted, and private health insurance is unaffected.

Q Will my company stop offering the benefits? A The proposals will not block firms offering benefits through salary sacrifice but will remove much of the incentive for them to do so. The fear is that companies will stop the offers as their financial advantage is smaller.

Q How much will people lose out? A A higher-rate taxpayer on a £350 mobile phone contract through work will have to pay an extra £140 a year for the same deal, according to experts at the firm Willis Towers Watson. In similar circumstances gym membership could cost an extra £160 and health screening an extra £240.