Salary Sacrifice Schemes

‘Tis the season to be jolly, and what could be more fun than receiving the benefits of higher take home pay from a salary sacrifice scheme? Not all salary sacrifice schemes are the same, and some are better than others.

There are three types of salary sacrifice schemes:

Schemes with tax and NI savings

Employees save tax and National Insurance (NI) and employers also save NI, for example car schemes for Ultra Low Emission Vehicles.

HMRC favoured schemes

Employees and employers typically save NI and, in some cases, employees may save tax, for example pension and cycle to work schemes.

Schemes with NI savings for employees only

These schemes save NI for employees, for example medical insurance schemes.

However, beware, Scrooge is lurking in the shadows waiting for employers to make mistakes, which will turn their schemes into ineffective taxable and NIable schemes, with the potential to go back six years for tax and NI!

Regular reviews are critical to ensure schemes remain tax and NI effective. Typical problem areas include:

Timing issues;
Documentation; and
Pay awards

Employers also need to watch out for the legislation that was introduced in 2017 with the catchy title Optional Remuneration Arrangements (OpRA for short). In broad terms, this legislation looks at not only salary sacrifice arrangements, but also any other arrangement where the employee has an option to have something other than the benefit available, for example car allowances instead of a car. If a benefit is provided where there is an alternative available then the taxable benefit will be the higher of the two amounts.

If you need any help with employment tax matters, either for the Christmas past, present or the future, please get in touch with us at employmenttaxesteam@unw.co.uk.