Salary Sacrifice Arrangements
Salary sacrifice arrangements broadly operate by enabling employees to exchange part of their cash remuneration on which PAYE and NIC is due for non-cash benefits which may be wholly or partially exempt from tax and NIC. The resultant savings may be passed on to the employee, retained by the employer or shared. The ability to take an element of remuneration in a different form can also help to incentivise and attract employees and is increasingly common in todays workplace.
There are a number of benefits which can be provided tax efficiently as part of a salary sacrifice arrangement such as pension contributions, childcare vouchers, car parking, mobile phones and bicycles under the cycle to work scheme. Replacing salary by any of these benefits will give tax savings subject to certain conditions being met.
Alternatively other benefits can be provided which, although remaining taxable, may produce a saving to employees via the employers purchasing power for example health or holiday insurance, or retail vouchers.
Finally lifestyle benefits such as salary sacrifice in exchange for additional holiday entitlement are also an attractive incentive for employees.
It is important to note that any such arrangement represents a variance to an employees contract of employment so professional advice must be sought in implementing a scheme. Both parties must also appreciate that salary sacrifice is a reduction of rather than a deduction from salary which must have some element of permanence. For this reason therefore there may be a knock on effect on an employees ability to borrow for example.
In the Summer Budget the Chancellor did indicate that due to the cost to the taxpayer of such schemes the government would keep them under review. For the time being however salary sacrifice remains an attractive, and potentially tax efficient, way of attracting and retaining staff. For more information about the savings which can be made, please contact our Tax Director Jenny Marks.
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