Setting up a salary sacrifice arrangement

By Tolley in association with Robert Woodward

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

  • Setting up a salary sacrifice arrangement
  • Stage one: Disclosure of Tax Avoidance Scheme (DOTAS)
  • Stage two: documentation
  • Stage three: further guidance
  • Stage four: employee communication / consultation process
  • Stage five: implement payroll changes
  • Stage six: launch
  • Stage seven: HMRC clearance

The key technical points to consider when setting up a salary sacrifice arrangement are considered in the Salary sacrifice arrangements ― overview, Salary sacrifice and national minimum wage, Optional remuneration arrangements, and Salary sacrifice and pensions guidance notes. Set out below are the practical considerations in respect of implementation of the arrangement.

Experience suggests that employers often have a launch date already pencilled in, but if this has not been done it would be sensible to examine when this is practical. In working towards this deadline, employers may wish to consider this typical timetable which can be adapted as required.

Stage one: Disclosure of Tax Avoidance Scheme (DOTAS)

As salary sacrifice schemes may fall within the DOTAS rules, once the design of the scheme is fixed, the employer should seek advice on whether the scheme is notifiable under DOTAS. If it is, a DOTAS disclosure to HMRC has to be made within tight time limits. The timing requirements and consequences for non-compliance are explained in more detail in HMRC guidance  and in Simon’s Taxes A7.261 (subscription sensitive). See also the Disclosure of Tax Avoidance Schemes (DOTAS) ― overview guidance note. Note that salary sacrifice arrangements involving pension contributions, childcare vouchers or cycles for work are generally not notifiable under DOTAS.

Stage two: documentation

The next step is for the employer, in conjunction with his advisers, to draft the paperwork which incorporates the technical points covered elsewhere. These documents should include:

More on Salary sacrifice schemes: