The exemption for parking provision and expenses under section 237 ITEPA 2003 exempts the provision, reimbursement, and payment of parking at or near the employee’s workplace.
If an employer were to provide, reimburse or pay for parking facilities and then recover this from the employee’s gross earnings under a salary sacrifice arrangement, the exemption no longer applies, and the provision becomes taxable.
If an employee receives a benefit in exchange for gross salary, the employee is taxed on either the cost of the benefit or the amount of salary given up as taxable earnings to the employee. The employer is obliged to report the taxable amount on for P11D.
From April 2017, most salary sacrifice arrangements were withdrawn with the introduction of optional remuneration. Optional remuneration can take the form of an agreed deduction from an employee’s gross pay in return for a benefit, known as type A arrangements or, an agreement under which the employee elects to receive a benefit instead of cash pay, known as type B arrangements.
Only a few exemptions still enjoy tax efficiency where they are provided in conjunction with an optional remuneration arrangements or salary sacrifice. These are known as excluded exemptions under s228A ITEPA 2003.
From a National Insurance contribution (NIC) standpoint, whether the amount is liable to class 1 NIC or class 1A NIC relies upon the fact whether the parking is being provided by the employer or being paid or reimbursed by the employer.
If the employer provides the parking whereby the supply is in the employer’s name, the amount will be liable to class 1A NIC. Where a salary sacrifice arrangement is operated on an employer provided benefit, the employee will continue to enjoy a saving in respect of class 1 NIC from the amount of earnings given up under the arrangement.
However, if the employee were being reimbursed or the employer were paying for the parking on their behalf direct to the supplier, the amounts would be treated as earnings. This means the amount would be liable to class 1 NIC.