Salary Sacrifice Arrangements

In our story, we tell of the wonderful occasion where an impoverished young employee was clearing up his office when he found an old oil lamp in a disused cupboard. It had clearly lain there for many, many years as it was very dirty and so the employee decided to clean it with a cloth. Whilst he was cleaning it, to his surprise it started to smoke, and as the smoke solidified a Genie appeared in its place.

The Genie looked at him and said, “Master, you have freed me from a thousand years of imprisonment in the lamp. Out of gratitude, I am obliged to grant three wishes, but no more”. Standing back in amazement the employee, thinking of the financial hardship in his life declared, “My first wish is that I get more pay in my pocket, for all of the hard work that I do for my employer”.

“Your wish is my command master,” said the genie and set up a magical scheme that allowed the employee to pay less National Insurance Contributions, meaning that he had more cash in his pocket. This magical scheme was known as a salary sacrifice scheme.

That was straightforward enough thought the employee, although it was clear that to be compliant there were several rules to be followed. Thinking selflessly about his next wish, the employee considered his employer. I know that my employer is also financially stretched, as his costs have increased and will soon increase even further, and I would like to carry on working for him for many years to come. Rubbing the lamp again, the employee wishes that similar savings can be afforded to his employer. With that, the Genie expresses that the self-same magical salary sacrifice scheme will also produce savings for the employer, reducing employer’s National Insurance Contributions, although the genie highlighted that there are special rules that prevent certain benefits to be included in such a scheme.

When the Genie asked the employee whether he had a third and final wish his response was immediate. Again, thinking of all but himself he told the Genie that his third and final wish would be to wish everyone that he knows a very Merry Christmas and a Happy New Year.

If you need any help with the exemption, please contact our helpful UNW elves at employmenttaxesteam@unw.co.uk.