A salary sacrifice scheme is an arrangement between an employee and employer where the employee agrees to give up a portion of their gross salary in exchange for non-cash benefits.

These benefits can include increased pension contributions, childcare vouchers, cycle-to-work schemes, or additional annual leave, among others.

Here’s how it works and the key benefits:

1. How it works:

• Agreement: The employee and employer agree on the amount of salary to be sacrificed and the specific benefit to be received in return.
• Reduction in gross salary: The employee’s gross salary is reduced by the agreed amount before tax and National Insurance Contributions (NICs) are calculated.
• Provision of benefits: The employer provides the chosen benefit, such as increased pension contributions or other perks.

1. Key Benefits:

• Tax savings: By reducing the gross salary, the employee pays less income tax and NICs. The savings on NICs apply to both the employee and the employer.
• Increased pension contributions: When salary is sacrificed for pension contributions, these contributions are made from gross salary, thus benefiting from full tax relief.
• Cost-effective benefits: Some benefits, like childcare vouchers or cycle-to-work schemes, may be more affordable when obtained through salary sacrifice compared to purchasing them independently.
• Employer advantages: Employers also save on NICs and can offer attractive benefits to employees, which can aid in recruitment and retention.

1. Examples of common salary sacrifice benefits:

• Pension contributions: Additional contributions to an employee’s pension fund.
• Childcare vouchers: Vouchers to help cover childcare costs.
• Cycle to work schemes: The provision of a bicycle and related equipment.
• Car leasing: Leasing of a car, often including maintenance and insurance.

1. Considerations:

• Impact on other benefits: A lower gross salary might affect other salary-related benefits, such as statutory maternity pay, life assurance, or mortgage applications.
• Scheme rules and limits: There are specific rules and limits on certain benefits. For example, the amount that can be sacrificed for pension contributions is subject to annual allowance limits.

Overall, salary sacrifice schemes can be a tax-efficient way for employees to receive benefits, but it’s important to understand the full implications and ensure that it aligns with personal financial goals. Consult with Robinsons, as we can provide more tailored advice.

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