How Do Salary Sacrifice Schemes Work?

With 84% of UK companies planning on adopting salary sacrifice schemes during 2024, understanding how this process works is essential. Understanding the finer details is important not only for employees who want to ensure they are getting what they are entitled to but also for ensuring tax compliance.

In this article, we will explain how a salary sacrifice scheme works and share some other useful information for effectively managing the various programmes available.

What Is A Salary Sacrifice Scheme?

Salary sacrifice refers to when an employee opts to forgo some of their paid wages in favour of non-cash benefits. This means the money is non-taxable, providing them with more money going towards their chosen purpose.

By lowering income tax and national insurance, employees do not need to claim tax relief as the money is taken from their earnings directly.

What Does A Salary Sacrifice Scheme Cover?

Even if you have not heard of the term salary sacrifice in the past, you will likely understand what is offered based on the schemes available. The money taken from earnings can be used for direct payments for any of the following:

  • Pension saving plans—This is the most popular option, and some companies offer the additional benefit of matching savings, which helps people accumulate more funds.
  • Childcare and nursery attendance—Available in the form of childcare vouchers and placements at company establishments, childcare and nursery attendance is the best way to help parents continue working without spending all of their wages on child supervision.
  • Cycle-to-work schemes are also popular for those wanting to use the money to improve their well-being.
  • Technology schemes – This allows the purchase of a wide range of electrical items, which can be paid at 0% over a 12-month salary deduction period.

How Does A Salary Sacrifice Scheme Work For Employees And Businesses?

Adopting a salary sacrifice scheme is a simple process for management, especially for companies that have professional bookkeeping and accounting services.

Firstly, a business will need to sign up with an official partner who provides the salary sacrifice scheme in question. You can then offer this option to employees, with both yourself and the affected individual needing to choose the salary that will be given up. The salary sacrifice scheme can also be amended anytime, but internal financial teams will need to ensure tax obligations are updated.

This amount is then taken from monthly salaries before tax and national insurance, meaning it doesn’t need to be calculated during payroll. The money is then made available in the chosen scheme so the employee can access the agreed benefits. It should be noted that only employees who will remain above the minimum wage after the sacrifice are eligible to take part.

What Support For Salary Sacrifice Schemes Are Available From Hysons Chartered Accountants?

If your company wants to introduce salary sacrifice schemes, you should now understand that the process is simple. However, you will still need to ensure your bookkeeping is representative of current payments so as not to cause any confusion with tax responsibilities.

To find out how we can support you, contact us now.


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