Salary sacrifice and Auto Enrolment

27th July 2016

Have you thought about delivering tax savings for the employer and the employee with a salary sacrifice scheme?

Salary sacrifice takes place when an employee gives up the right to part of their remuneration in return for the employer providing the employee with some form on non-cash benefit.

As announced in the 2016 Budget, the government is considered limiting the range of benefits that attract income tax and National Insurance advantages when they are provided as part of a salary sacrifice arrangement. However, the government

Effects of successful salary sacrifice

Where salary sacrifice is implemented with a pension payment being provided by the employer then the employee will pay income tax and NICs on the lower cash salary. There is no charge to income tax or NICs on the amount of the pension payment made by the employer.

The effect of using salary sacrifice for employee's pension payments would therefore be a saving of up to 12% for the employee and up to 13.8% for the employer.

Example

 

HMRC approval

HMRC will not comment or advise on any proposed salary sacrifice arrangements as they do not want to be involved in employment agreements. They will, however, give assurance after the arrangements are in force. To allow HMRC to do this they will require sigh of all relevant documentation.

The requirements of salary sacrifice schemes can be complex and if you need any further advice do not hesitate to get in touch