The HMRC have removed all guidance on salary sacrifice arrangements set up before April 6th 2017. This acts as the transitional arrangement of calculating the value of the benefit which came to an end in April 5th 2021.
A salary sacrifice arrangement is an agreement made between employer and employee which sets out to reduce the employee’s cash income and replace the money lost with a non-cash benefit.
This arrangement is set up by amending the terms of an employee’s contract. These changes can only be made once the employee has agreed to the changes offered.
The salary sacrifice will have an impact on both tax and national insurance contributions payable for an employee. However, this will be dependent on the pay and non-cash benefits that will make up the salary sacrifice arrangement.
The employer is responsible for paying and deducting the correct amount of tax and national insurance contributions for the cash and benefits they provide.
The cash component of the employer’s pay will be completed using the PAYE system correctly via payroll. For any non-cash benefits that have been added as part of the salary sacrifice the value for each benefit will have to be calculated by the employer.
If an employer is to create a new salary sacrifice arrangement, they will need to calculate the value of the benefits using the higher of the:
- Amount of salary losts to the non-cash benefits
- Earnings charge under the normal benefit in kind rules
- For cars with CO2 emissions of no more than 75g/km, employers should always use the earnings charge under the normal benefit in kind rules.
Since 1992, D E Ball & Co Limited has been an independent business advisory service based in Telford, Shropshire. With their advisors working with businesses in the agriculture, services, construction and retailer sectors, they have a broad span of knowledge to offer. To see find out more about D E Ball, and Salary Sacrifices visit: https://www.deball.co.uk/