Written by Paul Chappell
Published on December 30, 2009

The range of benefits that can be offered under salary sacrifice arrangements has expanded in recent years and the advantages for employers and employees are considerable. Salary sacrifice arrangements around tax efficient benefits allow staff to swap part of their gross salary for a non cash benefit provided by their employer.

Typically these are offered as part of a voluntary or flexible benefits package and enable employees to save tax and national insurance, while their employer also saves 12.8% National Insurance Contributions on the portion of the employees gross salary that is sacrificed.

In tough economic times, although the cost of salary sacrifice arrangements to the employer are very small, they have a high perceived value amongst staff.

The popular benefits that can be included in a salary sacrifice are pension contributions, childcare vouchers/provisions, cycle to work scheme and purchasing additional days holidays.

A successful salary sacrifice scheme requires an amendment to the employees contract of employment to account for the reduced salary being taken. Because the contract of employment is an issue primarily governed by Employment Law, HMRC have little or no say in the setting up of such a scheme. However if the scheme is not set up correctly through the correct amendment to the contract of employment and benefits are provided and reduced employers National Insurance paid, HMRC can and do seek retribution in these instances.

Caution should also be exercised if an employee's gross pay is on or around the National Minimum Wage. The sacrifice cannot take the Gross Pay below the National Minimum Wage.

Employers that are seeking tax-efficient ways to add value to their benefits package certainly have a number of options to choose from under salary sacrifice. The employer can also, if they so wish in respect of pension contribution through a salary sacrifice, contribute the 12.8% Employers National Insurance Contributions further enhancing the employees pension contributions.