Types of salary sacrifice
Produced in partnership with Lewin Higgins-Green of FTI Consulting and Philip Swinburn of Macfarlanes

The following Share Incentives practice note produced in partnership with Lewin Higgins-Green of FTI Consulting and Philip Swinburn of Macfarlanes provides comprehensive and up to date legal information covering:

  • Types of salary sacrifice
  • What is salary sacrifice?
  • What are optional remuneration arrangements?
  • Implications of the optional remuneration changes
  • Pension contributions
  • Cycle to work scheme
  • Employer-supported childcare
  • Effect of government supported tax-free childcare scheme
  • Conditions for employer-supported exemption
  • Employer-supported childcare vouchers during maternity leave

Types of salary sacrifice

Coronavirus (COVID-19): As part of a series of measures put in place to stop the spread of coronavirus (COVID-19), HMRC announced the Coronavirus job retention scheme (CJRS) on 20 March 2020 which provides support to UK employers with a grant to enable them to continue paying up to 80% of their employees’ salary (up to £2,500 per employee per month) for those employees that have been ‘furloughed’ during the coronavirus outbreak provided that, among other things, those employees were on the relevant business’ PAYE payroll on or before 19 March 2020 and which were notified to HMRC on an RTI submission on or before 19 March 2020.

Later guidance on the CJRS released by HMRC confirmed that the ‘salary’ should not include the cost of non-monetary benefits provided to employees, including taxable benefits in kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary. Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the CJRS.

The guidance also confirmed that coronavirus counts as a life event that could warrant changes to salary sacrifice arrangements without prejudicing the validity of the salary sacrifice arrangement, if the relevant employment contract is updated accordingly.


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