Salary Sacrifice & Benefit In Kind

[£15]

Reading this forum I'm sure there's someone with some knowledge on such matters, because it's the first time I've ever had to deal with BIK and I don't.

In January 2019 I took out a gym membership through my employer's salary sacrifice scheme. I understood it would offer a small saving over buying directly from the gym due to reducing my gross salary (by £28.73pm) and therefore paying less tax/NI. I also upgraded my Medicash package from the 'free' Level 1 to Level 2 at a cost of £4.93pm.

The only other times I've used salary sacrifice were in previous employment to buy a bike and extra holidays. My gross wage was simply reduced and there was nothing more complicated going on.

However, my gym membership and Level 2 Medicash have been recorded as 'BIK' and 'Medical Insurance' and I've just received a letter from the tax man saying I owe them £86.40. From what I can work out this is much more than any saving I am making compared to simply buying the gym membership direct.

I thought the idea was to reduce my salary to save me money (admittedly just a few quid pm). But what's actually happened is the tax man has increased my gross salary by £344 (Gym BIK) + £79 (Medicash) = £423 (£35.25 per month) so I'm paying more (tax).

Am I missing something?

 

[Pudney]

Reading this forum I'm sure there's someone with some knowledge on such matters, because it's the first time I've ever had to deal with BIK and I don't.

In January 2019 I took out a gym membership through my employer's salary sacrifice scheme. I understood it would offer a small saving over buying directly from the gym due to reducing my gross salary (by £28.73pm) and therefore paying less tax/NI. I also upgraded my Medicash package from the 'free' Level 1 to Level 2 at a cost of £4.93pm.

The only other times I've used salary sacrifice were in previous employment to buy a bike and extra holidays. My gross wage was simply reduced and there was nothing more complicated going on.

However, my gym membership and Level 2 Medicash have been recorded as 'BIK' and 'Medical Insurance' and I've just received a letter from the tax man saying I owe them £86.40. From what I can work out this is much more than any saving I am making from getting the gym membership through work!

I thought the idea was to reduce my salary to save me money (admittedly just a few quid pm). But what's actually happened is the tax man has increased my salary by £344 (Gym BIK) + £79 (Medicash) = £423 (£35.25 per month) so I'm paying more (tax).

Am I missing something?

The tax rules around salary sacrifice schemes were changed a couple of years ago so that now, unless the benefit is specifically exempted, the taxpayer is taxed on the benefit at the higher of the salary given up and the value of the benefit under normal BIK rules.

Basically, salary sacrifice is now pointless unless you're using it for one of the exempted benefits (e.g. pensions or cycle to work schemes).

 

[£15]

Thanks for such a prompt reply.

That's really annoying. Well, I'll be cancelling the gym membership (salary sacrifice) at the end of the year!

 

[RoyMi6]

I'm surprised your employer hasn't just stopped it. We went through the same thing, got offered it, some poeple took it up, government changed rules (or whatever happened) so employer got everyone off it that had signed up already and stopped offering it.

 

[Pudney]

Thanks for such a prompt reply.

That's really annoying. Well, I'll be cancelling the gym membership (salary sacrifice) at the end of the year!

Just to point out, if you're paying £28.73 or more per month for gym membership directly the tax rules shouldn't be leaving you in a worse position. The rules should be putting you back in the salary position before any salary sacrifice. Well, conceptually you shouldn't, I haven't bothered with actual maths to show it.

 

[£15]

The gym membership direct from the leisure centre can be had for £30.99 pm. Salary sacrifice is costing me £28.73pm, with £344 BIK.

 

[ShadowMan]

If you get a discount rate via salary sacrifice then you should be saving whatever the discount amount it. The tax basically assumes you would have earned that money anyway and taxes you appropriately. If you paid retail rate via salary sacrifice then it’s nett 0 and pretty pointless.

Gym paid directly from salary and then you pay tax on equivalent earnings. You get the discounted rate though so overall you win by a few quid.

Some items are exempted from BIK but most aren’t now.

to pay your £30 gym membership you have to earn nearly £40 anyway with NI and Tax at 20%.

 

[ShadowMan]

The gym membership direct from the leisure centre can be had for £30.99 pm. Salary sacrifice is costing me £28.73pm, with £344 BIK.

£344 is the BIK value you pay tax on. Should t be what you actually pay.

that is value of 12x gym membership and 12x extra health insurance minus discounts etc. You the pay tax on that value.

that’s why you owe £86 in tax.

 

[ShadowMan]

Try and work it out without the insurance but and you will see you are still around £3 monthly better off for the gym membership.

 

[Energize]

It's disgraceful the way people are taxed on medical costs like insurance.

 

[ShadowMan]

Why? It’s insurance above what you need. It’s also not actually taxed. It just not exempt if you pay it pretax. Puts you in same position as if you bought a policy retail from nett earnings but chances are an employer negotiated policy is far better and cheaper than retail.

I pay £160 monthly for a family of 4 with full coverage on anything and a £100 a year excess per person via work. The BIK just means I know I pay that from Nett earnings even though it is taken from pretax. That would be far more expensive if I wanted it individually rather than via the work scheme.

 

[Kenai]

Don't forget your apparent 'saving' to date isn't just the 30.99 vs 28.73 difference, it's the fact you haven't paid any tax on 28.73 worth of your income each month too.

That's not allowed these days so they're recovering that back via the BIK adjustment but you should still be realising the saving of a couple of quid.

 

[Destination]

It's disgraceful the way people are taxed on medical costs like insurance.

The counterpoint is you are not taxed on the payout of insurances.
The opposite of pensions, you get the reduction in what you pay in, but they tax you on the eventual pension.

 

[Energize]

Why? It’s insurance above what you need.

So we should penalise people for going private and using less NHS resources? What sort of logic is that?

It's crazy that the government claims to care so much about peoples health that they impose a sugar tax yet they tax private medical services and whack the full 20% rate of VAT on smoke alarms and fire extinguishers.

 

[Pawnless Endgame]

When did the rules change?

In April 2013, I got given an all-in-one PC on the NHS and it was paid off monthly on salary sacrifice over 3 years. In the 1st year, I had a letter from HMRC to say that my tax code will be a slightly different amount, then in years 2 and 3 it went back to the normal taxpayers' level. It worked pretty well for me, was just like paying for a PC on finance.

What you guys are describing here seem very unfair!

 

[[FnG]magnolia]

I unironically love it when @Pudney gets his Accountancy game on. Dude rocks my world.

 

[ubersonic]

When did the rules change?

In April 2013, I got given an all-in-one PC on the NHS and it was paid off monthly on salary sacrifice over 3 years. In the 1st year, I had a letter from HMRC to say that my tax code will be a slightly different amount, then in years 2 and 3 it went back to the normal taxpayers' level. It worked pretty well for me, was just like paying for a PC on finance.

You can still do that today, in our trust there's internal mails going around about it in the run up to Xmas to make sure everyone knows.

 

[jpod]

I've just received a letter from the tax man saying I owe them £86.40..........

Am I missing something?

Yes, the irony....................... that the tax man is bothered about if your cycling/gymming it - and they want their 86 quid back .....but then let massive companies off with millions in tax and let them take the mick. Bonkers.

That £86 will go towards a duck island, sleeping police man, or a transitioning 8 year old if that makes you feel any better.

 

[cheesyboy]

You still save NI with these salary sacrifice benefits, but as you seem to be paying higher rate tax, your marginal NI rate is only 2% anyway.

 

[Brizzles]

Never take a salary cut and the only benefits in kind are from a female flat share.

CBA to read your post.