Salary sacrifice arrangements ― overview

By Tolley in association with Robert Woodward
Salary sacrifice arrangements ― overview

The following Employment Tax guidance note by Tolley in association with Robert Woodward provides comprehensive and up to date tax information covering:

  • Salary sacrifice arrangements ― overview
  • Legal background
  • Uses of salary sacrifice
  • Flexible benefits schemes

For more information and guidance from HMRC in this area in relation to coronavirus (COVID-19), see our dedicated Tolley COVID-19 Toolkit .

A salary sacrifice arrangement is a formal agreement under which an employee accepts that with effect from a set date, they will receive a lower taxable salary than previously, and also receive an agreed benefit or package of benefits. Agreements must apply for a minimum period, usually for at least one year.

The two key elements necessary for a salary sacrifice to work are that:

  • the entitlement to future remuneration must be given up before it is treated as received for tax or NICs purposes
  • the true construction of the revised contractual arrangement between employer and employee must be that the employee is entitled to lower cash remuneration and a benefit

With effect from 6 April 2017, the taxation of certain benefits provided under a ‘optional remuneration arrangement’ as defined by ITEPA 2003, s 69A changed for any agreement effective on or after that date. The guidance and legislation relating to the salary sacrifice itself remains unchanged but this guidance must be read in conjunction with the Optional remuneration arrangements gui

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