SE42750 - Salary sacrifice: what is a salary sacrifice? - arrangement of guidance

Section 19(1)1 ICTA 1988

What is a salary sacrifice?

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 £34,800 a year and 52 childcare vouchers for 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 employer's contributions to an approved retirement benefits 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