‘It’s not all about salary… it’s an attack on loyalty’: Middle class tax perks including mobile phones, gym memberships and PlayStations are raided to raise £1bn 

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Middle class workers face a billion-pound tax raid on job perks including mobile phones, company cars and health care.

Employees who give up part of their salary in exchange for such benefits will be penalised from next year.

A shake-up means they could pay hundreds of pounds more in tax and national insurance to continue receiving the perks. Others could have their benefits scrapped altogether because companies can no longer afford to offer them.

CASE STUDY: FINANCIAL SERVICES MANAGER IN BATH

Married father-of-three Tom Birch says the removal of middle class tax perks is an attack on company loyalty 

Married father-of-three Tom Birch says the removal of middle class tax perks is an attack on company loyalty.

The 43-year-old, a £100,000-a-year senior manager in financial services, has been with his employer for a decade and believes there should be advantages for those who stick with their firm.

He receives a 4.5 per cent pension contribution, extra life insurance, dental cover, and critical illness cover through a salary sacrifice scheme of £370 a month.

Mr Birch, who has used the private medical insurance this year for back problems, said: ‘I feel very strongly about employers that want to reward their staff for long-term service and looking after them and their family. To remove them will make some people not take up the benefits.

‘It’s not all about the salary nowadays, it’s about the extra benefits that companies provide. And that tends to be for loyalty and retention, and I think if companies are less able to do that it’ll potentially have a big effect.’

Mr Birch, pictured with wife Erika, 34, at their £550,000 home in Bath with children, Jackson, six, Maddie, five, and one-year-old Harry, said he will continue with the scheme after the Chancellor’s shake-up.

But he said he ‘resents’ the idea of paying more tax. He added: ‘They’re things that are important to me as a family man, but I will have to work out how much extra a month it’s going to cost me.

‘I think these things had a limited term anyway really, so it was just a case of making hay while the sun shines.’

Critics said the move would hit millions of modestly-paid workers who rely on work perks to make ends meet.

According to accountancy firm Deloitte, those on £30,000 a year who give up £30 a month for a gym membership face an annual extra of £115 in tax and national insurance.

Tina Riches, partner at accountants Smith and Williamson, said: ‘This is a stealth raid on ordinary workers. A lot of companies will have a salary sacrifice scheme. It’s not tax avoidance. It’s a way of offering more choice to employees.

‘When workers see their perks being stripped away or find themselves having to pay more tax for them they could become disgruntled.’

Chancellor Philip Hammond said the current system is ‘unfair’ and will scrap the tax perks from April

Under current rules, employees can opt to give up a chunk of their salary in exchange for a benefit such as a company car, mobile phone or gym membership. As well as receiving the perk, both worker and their employer cut the amount of tax and national insurance on which they are liable.

Many perks offered through such schemes are not taxed at all or at a level far lower than a worker’s typical income tax rate. Employers also escape paying national insurance on the sacrificed pay.

Under the scheme, a basic rate taxpayer who gave up £700 for a phone contract provided by their employer would be able to save £224 in income tax and national insurance on their pay. Their employer saves £97 in National Insurance. But ministers fear the rules are being exploited and deprives the Treasury of about £235million a year.

Chancellor Philip Hammond said the current system is ‘unfair’ and will scrap the tax perks from April. The Government will save £85million from the measure next year, rising to £260million in 2021 to 2022. Ultra-low emission company cars, pension contributions and bicycles used for commuting will be exempt.

Salary sacrifice arrangements for cars, accommodation and school fees will also be protected until 2021.

Sue Robinson, of accountancy firm Ernst and Young, said: ‘These benefits are portrayed as perks for the higher paid but many lower paid workers will also be affected.’ 

Chas Roy Chowdhury, of the Association of Chartered Certified Accountants, added: ‘This could end up costing the Government millions more in the long run because of the cost of NHS treatment if workers end up giving up on the gym or stop having health care checks as a result of this policy.’

Fuel duty frozen for 7th year 

By James Salmon

Fuel duty will be frozen for the seventh consecutive year in an effort to control spiralling prices at the pumps.

The Chancellor said it would help ‘millions of hardworking people’ and represents a £850million ‘tax cut’ next year – when compared with the rises that were due to take place under the fuel duty escalator.

In total he said the freeze since the March 2011 Budget has saved £130 a year for car drivers and £350 a year for van drivers.

Fuel duty will be frozen for the seventh consecutive year in an effort to control spiralling prices at the pumps

The move will cost the Treasury more than £4.3billion over the next five years.

But motoring campaigners expressed disappointment that the Chancellor had not gone further by cutting fuel duty.

They added that the saving would also be more than wiped out by an increase in insurance premium tax.

The cost of filling up a family car has risen by almost £5 since January as oil prices have doubled from a low of around $26 a barrel to just under $50.

During the same period the pound has fallen by 15 per cent against the dollar – the currency used for oil.

Mr Hammond said these factors created ‘significant pressure on prices at the pump here in Britain’.

‘So today we stand on the side of the millions of hardworking people in our country by cancelling the fuel duty rise for the seventh successive year,’ he added.

‘This is a tax cut worth £850million next year, and means the current fuel duty freeze is the longest for 40 years.’

Petrol has risen from 102.69p per litre to 114.77p, while diesel has gone up from 105.99p to 116.8p. Fuel duty has been frozen at 57.95p – more than half of the cost of petrol and diesel – since the March 2011 budget. Motorists also pay 20 per cent VAT on fuel.

Campaigners said the Chancellor should have gone further.

Quentin Willson, a motoring journalist and lead campaigner for FairFuelUK, said: ‘I’m disappointed that the Chancellor didn’t instantly put money into everyone’s pockets by cutting duty.

There’s an immediate benefit to the economy. This is a lost opportunity from a government still afraid of supporting drivers and roads.’

Edmund King, president of the AA, added: ‘The Chancellor has created the illusion of being the motorists’ friend with a freeze on fuel duty whilst pickpocketing drivers on insurance premium tax.’