EIM42750 - Salary sacrifice: what is a salary sacrifice: arrangement of guidance

Section 62 ITEPA 2003

A salary sacrifice happens when an employee gives up the right to part of the cash remuneration due under his or her contract of employment. Usually, the sacrifice is made in return for the employer's agreement to provide the employee with some form of non-cash benefit. The sacrifice is achieved by varying the employee's terms and conditions of employment relating to remuneration. For example, an employee's current contract provides for cash remuneration of £40,000 a year with no benefits. The employee agrees with the employer that for the future the employee will be paid cash remuneration of £34800 a year and 52 childcare vouchers a year, each with a face value of £100. This would be referred to as a salary sacrifice.

An employee may also sacrifice a one-off item such as a bonus.

In the past, the term salary sacrifice was mainly used to refer to the giving up of rights to future cash remuneration in return for the employer's contributions to a registered pension scheme. Now it is used to describe any situation where an employee gives up a right to future cash remuneration in return for a benefit in kind.

Arrangement of guidance

EIM42752

Reason for salary sacrifice

EIM42753

How changes to the employment contract are made

EIM42755

Income tax effects of a salary sacrifice

EIM42760

Conditions for successful salary sacrifice: summary

EIM42765

Conditions for successful salary sacrifice: timing

EIM42766

Conditions for successful salary sacrifice: entitlement to cash

EIM42767

Conditions for successful sacrifice: right to revert to original salary

EIM42769

Conditions for successful salary sacrifice: effectiveness of contractual arrangement

EIM42770

Conditions for successful salary sacrifice: implementation of contractual arrangement: payslip information

EIM42771

Conditions for successful salary sacrifice: implementation of contractual arrangement : reference or notional salary

EIM42772

Approval of scheme: before the scheme is set up and in operation

EIM42773

Approval of scheme: scheme set up and in operation

EIM42775

Contributions to a registered pension scheme: practical considerations

EIM42776

Salary sacrifice: is the sacrifice effective: frequently asked question

EIM42777

Salary sacrifice: implementation of contractual arrangement: other points to consider

EIM42778

Salary sacrifice: other points to consider: application of the tax/NIC exemption

EIM42780

Contributions to a registered pension scheme: income tax effects

EIM42785

Contributions to a registered pension scheme: example of successful salary sacrifice

EIM42786

Contributions to a registered pension scheme: example of unsuccessful salary sacrifice

EIM42790

Salary sacrifice: example of an unsuccessful sacrifice