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Salary Sacrifice Schemes

24 November 2016

Same-Day Company FormationMany employers have taken advantage of the tax and national insurance benefits that arise from having a salary sacrifice scheme in place for its employees, which is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit.

As an employer, you can set up a Salary Sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.

This arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap deductions and ensure NMW rates are maintained.

Changes to the Salary Sacrifice Scheme

During the Autumn Statement, the Chancellor announced that there would be major changes to this scheme as benefits would now seek to be taxed as cash income.  The exemptions that will remain are benefits such as pensions, childcare, cycle to work and ultra-low emission cars.

Any schemes that are currently in place and set up before 1 April 2017 will be protected for up to 1 year with the exclusion of the provision of cars, accommodation and school fees which will be protected until April 2021.

If your business has a salary scheme in place, please ensure that you obtain professional advice on how this should be dealt with in the forthcoming periods.

Find out how to set up salary sacrifice arrangements and calculate tax and National Insurance contributions on them if you’re an employer on the GOV.UK website

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