Many organisations offer salary sacrifice schemes.
A salary sacrifice scheme is a contractual arrangement under which an employee accepts reduced gross pay in return for their employer providing a specific non-cash benefit.
Once you accept a salary sacrifice, your overall pay is lower resulting in you paying less tax and national insurance. In addition, your employer will not have to pay their employers’ national insurance contributions on the part you sacrifice. Some employers may pass on these savings to you.
It has not been possible to sacrifice your salary to pay school fees unless you were a member of staff of an independent school which offered the scheme.
From April 2017, the government has significantly limited the range of benefits offered through salary sacrifice schemes. Members of existing school fees salary sacrifice schemes can continue to benefit until 2021, but no new contractual arrangements can now be made. Company car and accommodation schemes are also protected until 2021.
Work related training, car parking, health screening checks, mobiles phones, computers and tablets and gym membership schemes are all no longer allowed.
Salary sacrifice is still permitted for ultra-low emission cars (ULEVs), pensions savings, pensions advice, childcare and the cycle-to-work schemes.
Salary sacrifice is an especially tax-efficient way for you to make pension contributions as you will also pay less national insurance contributions. There are some potential disadvantages depending on your circumstances:
There are fears that the recent changes are a sign that salary sacrifice schemes will be discarded altogether. The government, however, is likely to be concerned about the impact that scrapping pension contribution salary-sacrifice would have on auto-enrolment take-up. On the other hand, salary sacrifice pension schemes result in a big loss to national insurance contributions.