A new online petition is urging the UK Government to enable people in work to have regular living expenses such as mortgages, rent, Council Tax, energy bills, food costs and childcare deducted from their monthly wages before any tax or National Insurance Contributions are taken. Petition creator Gracie-Ann Allijohn believe amending the ‘salary sacrifice’ process would provide “several key benefits” for employees during the ongoing cost of living crisis.
These include giving people more disposable income which would in turn boost the UK economy as Brits spend more on the high street, a reduction in financial pressure brought about by fluctuating inflation rates and higher energy bills and a fairer tax system. Ms Allijohn argues that there are “loopholes for the rich” and “some large companies do not pay a fair amount of tax”.
The campaigner added: “I also think that a large percentage of tax is wasted, and it is therefore only fair to let people keep more of their income, and funding this could include reducing public services.”
The petition has been posted on the petitions-parliament website. At 10,000 signatures of support for the proposal, it would be entitled to a written response from the UK Government, at 100,000 it would be considered for debate in Parliament by the Petitions Committee.
You can read the ‘allow employees to deduct living expenses from salary before it’s taxed’ petition here.
Salary sacrifice – what is it and how does it work?
For those that have never heard of ‘salary sacrifice’, Jonathan Watts-Lay, Director at WEALTH at work, breaks it down and how it could be something more people could benefit from.
He explained: “One way to save money is by paying for things through your company payroll using your pre-tax salary, so you pay less income tax and National Insurance. This is known as salary sacrifice and can offer employees significant savings.”
Jonathan said that higher rate taxpayers can make a saving of 40 per cent in income tax and 2 per cent in National Insurance, while employees who pay tax at the basic rate can make a saving of 20 per cent in income tax and 12 per cent in National Insurance.
He continued: “Many people pay their pension contributions in this way, but it can also be used to pay for transport such as company cars, bikes, and bus passes, and even mobile phones, gym passes and health and dental care. However, many benefits such as mobile phones and company cars are now seen as ‘Benefits in Kind’, and while savings can still be made, many do now have high tax charges.
“Tax free benefits however are still available on employer provided pension savings and pensions advice, certain types of employee share plans, and cycle to work schemes.”
He added that childcare vouchers and contracted childcare can also be paid for through salary sacrifice, although these arrangements are closed to new applicants .
Jonathan also said it is one of the best ways to buy a new electric car. He explained: “For those looking for a new car, salary sacrifice is one of the most cost-effective ways to drive an electric vehicle, as the benefit in kind value applied to electric cars is currently 2%. This means the income tax and National Insurance saving outweigh this relatively small ‘Benefit in Kind’ cost, whereas the cost for drivers of petrol and diesel and cars can be up to 37%.
He added: “Salary sacrifice can also mean that there is the potential for your employer to negotiate corporate discounts for things like car parking, mobile phones, laptops, gym memberships, cars and bikes. But it could mean that you have less choice as they may only be available through selected providers.
“It will also mean that you will have less salary coming in each month, so make sure that you will still have enough.”
Jonathan advises anyone interested in salary sacrifice should speak to their employer to find out what options are available.