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Points to consider when implementing a salary sacrifice scheme

25 September 14 | By: Jas Jhooty

Salary sacrifice

In this week’s article we briefly set out some of the key areas of consideration for implementing any type of salary sacrifice or flexible benefits scheme.

The following list (which is by no means exhaustive) will be useful for general background and information purposes, to anyone thinking about introducing a new salary sacrifice scheme.

In any salary sacrifice arrangements you will probably have to think about the following factors:-

Scheme design

This is basically which salary sacrifices or benefits to offer, to which employees, and to ensure the pros and cons of each type of arrangement are understood at the outset. Sometimes an employee survey is useful to ensure that employee interest (or otherwise) in each type of benefit etc. is established beforehand.

Wording of employee sacrifice agreements

To ensuring these represent a legally binding reduction from taxable pay and are made on a timely basis.

Payroll calculations

You have to consider any effect on payroll elements such as shift allowances, overtime etc.; and whether payroll can operate and maintain a ‘notional pay’ figure e.g. for the purposes of any bonuses or annual increments.

Payslip adjustments

Also you have to ensure that payslips can cope with the additional fields required and can satisfactorily demonstrate the revised tax and NIC calculations for staff.

Non-continuous employees

How to treat leavers and other employees who are not in continuous employment e.g. those on maternity leave or longer term sickness.

Tax clearances

Any HMRC agreement on a scheme with one employer is not transferable to another employer. Even where the scheme details are identical we do see differences of opinion between HMRC offices. Tax clearances tend to be a two-pronged matter; seeking agreement that any salary sacrifice is effective, and seeking agreement on the tax treatment (or exemption) of each benefit (both steps are essential).

Excluded employees

You should have systems in place to monitor potentially ‘excluded’ employees e.g. any paid close to National Minimum Wage or other statutory wage limits, and considering any employee ‘lifestyle’ changes ‘in year’.

Employee reward statements

In addition to payslip information there is usually some value in providing employees with a summary of their ‘total reward’ as part of any annual or periodic salary sacrifice agreements. Some external businesses are able to provide such a service if you are unable to deal with this in house.

Employee communications

As well as the legal necessity of agreeing changes in taxable pay, it is vital that communications are effective in order to allay any employee mistrust etc. and ensure maximum employee ‘buy in’ to the schemes.

How emTax can help

Our consultants have considerable experience in supporting clients design and implement schemes which are both technically robust and effective in practice. As well as providing advice before the implementation of any new salary sacrifice schemes we can also review your existing schemes and advise on their effectiveness as well as making suggestions on how to improve on any areas of weakness we discover.

We can then contact HMRC on your behalf to ensure that HMRC agrees the salary sacrifice is fully effective. Any submissions we make to HMRC will be carefully managed on the basis of full disclosure (i.e. cards face up on the table), to completely safeguard you against any future inspections by HMRC.

If you are interested in this or any other employment tax service, please do not hesitate to contact us.


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