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School Fees Salary Sacrifice for 2020-2021

Window of opportunity is fast closing

Andy Hamman, Director, Employment tax and Nick Irvin, Assistant Manager, Employment Tax
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Schools which act quickly may be able to deliver savings through restructuring salary sacrifice arrangements for reduced school fees for their employees prior to April 2021. This could be done by condensing the arrangements for a whole academic year into the seven months from September 2020 to March 2021. Schools should act now to benefit.

The Optional Remuneration Arrangement (OpRA) rules introduced in April 2017 resulted in the general rule that for most benefits, the amount subject to income tax under a salary sacrifice arrangement is the higher of the amount of cash pay given up or the taxable value of the benefit received under the normal benefit in kind rules.

For arrangements under which school members of staff take reduced salary in exchange for discounted school fees for their child, however, transitional rules are currently in place until 5 April 2021. These mean that if the original arrangements were put in place before 6 April 2017, then even where a new contract has been entered into or the original contract is modified, the OpRA rules will not apply until 5 April 2021, provided the new contract relates to:

  • the same employment with the same employer
  • the same school
  • the same child.

However, these transitional rules end on 5 April 2021, meaning the benefits of salary sacrifice arrangements for school fees are withdrawn from the end of the current tax year.

How are schools reacting?

In response to this, schools are taking differing approaches, including:

  • withdrawing salary sacrifice arrangements for school fees from the start of the school year in September 2020 with staff members receiving their salary instead;
  • continuing existing arrangements with the staff member suffering the additional income tax and NICs impact from 6 April 2021.
  • continuing existing arrangements until 5 April 2021, so that seven months’ worth of fees are sacrificed and then pay the remaining five months’ worth of fees by other means.

However, prior to agreeing renewed salary sacrifice arrangements for the new academic year, it is possible to vary the terms of the contract to include a whole academic years’ school fees against a salary sacrifice arrangement for the period to 5 April 2021. This will benefit from continued lower income tax and National Insurance Contributions (NICs) impacts from the cessation of the transitional rules.

It is important to note that the provisions must have been originally entered into before 6 April 2017 and must involve the same employment, the same school and the same child.

Regardless of the options chosen from April 2021, employees are encouraged to seek independent financial advice regarding the impact to pension contributions, such as a breach to the Annual Allowance, that an increase in gross salary may trigger. Crowe can advise you in this regard if you do not have another IFA in place.

For more information, please get in touch with Caroline Harwood or your usual Crowe contact.

Contact us

Caroline Harwood
Caroline Harwood
Partner, Head of Share Plans and Employment Tax
Tina Allison
Tina Allison
Partner, Head of Education - Non Profits