Salary Sacrifice Plans: Tax Savings for Employers and Employees

Salary sacrifice plans are a popular method for employers and employees to save on tax and National Insurance Contributions (NICs). These arrangements involve employees giving up a portion of their salary in exchange for non-cash benefits, which are often exempt from tax and NICs.

Common examples include:

  • Pension contributions
  • Cycle-to-work schemes
  • Childcare vouchers
  • Company cars (particularly low-emission vehicles)

While these plans provide significant financial advantages, not all arrangements qualify for tax relief.

Changes to Salary Sacrifice for Travel and Subsistence

Since 6 April 2016, salary sacrifice plans for travel and subsistence payments no longer qualify for tax or NIC benefits. This change was introduced to prevent the misuse of tax advantages, particularly for employees working through intermediaries or umbrella companies.

Key implications include:

  • Employees cannot sacrifice salary for tax-free travel allowances.
  • Employers must review salary arrangements to ensure compliance with updated rules.
  • Other salary sacrifice benefits remain valid but require careful structuring.

Employers are encouraged to review existing plans and communicate changes effectively to employees.

Considerations for Employers and Employees

When implementing salary sacrifice plans, employers must ensure employees understand potential impacts. A reduced salary could affect statutory entitlements, including maternity pay, sick pay, and even pension contributions. Proper planning and guidance are essential to avoid unintended consequences.

Additionally, payroll systems must be updated to apply changes correctly and ensure compliance with HMRC regulations.

How We Can Help

At Lewis Brownlee, we specialise in designing and managing salary sacrifice plans to maximise benefits for businesses and employees.

We provide guidance on:

  • Implementing compliant plans
  • Ensuring tax and NIC efficiency
  • Avoiding pitfalls with new regulations

We offer a free introductory meeting to review your payroll and tax arrangements. Let us help you make the most of your salary sacrifice plans. Contact us today!

Final Thoughts

Salary sacrifice plans remain a valuable tool for reducing tax liabilities, but changes to travel and subsistence rules highlight the need for proper planning. Employers should review and optimise their plans to stay compliant and maintain financial efficiency.