This is an example of an unsuccessful salary sacrifice and its
income tax effects.
For an example of a salary sacrifice that is successful see
EIM42785.
For information on salary sacrifice generally see
EIM42750 onwards
The pay slip for the month ended 31 July 2006 gives monthly pay
as £2000 plus overtime of £100, deductions for tax of
£355 and NIC. The pay slip for the following month shows
monthly pay of £2000 plus overtime of £100, deductions
for NIC, childcare vouchers of £200 and tax of £310. The
code number operated on the salary has not changed.
The situation is not clear from the payslip. When asked, the
employer explains that for August, because childcare vouchers of
£55 a week are exempt, £220 of vouchers has been deducted
from the gross pay of £2100 and tax charged on the net figure
of £1880. Further information is needed, for example a copy of
the employment contract and any variations agreed by the employer
and employee to that contract.
It is established that in July the employee bought childcare
vouchers. The employer was not involved. The employer accepts that
as the childcare in July was not provided by him, no tax exemption
is available. In August the employee asked the employer to buy the
childcare vouchers to take advantage of the exemption. The employer
did this and deducted the cost from the monthly salary. The
contract of employment shows that the employee is entitled to a
base salary of £24000 to be paid monthly. This contract has
not been varied. As the employee’s entitlement has remained
the same, this is not a successful sacrifice. (See
EIM42766).
If the employee bought or agreed to buy the childcare
vouchers which the employer then reimbursed the cost or paid for,
the employer is meeting a pecuniary liability of the employee. In
consequence as the employer has not provided the voucher, exemption
is not available, (see
EIM16057).
