HMRC guidelines on salary sacrifices
11 September 2008
HMRC issued a guidance note on 11 August 2008 in respect of salary sacrifice. The note provides guidance on whether schemes need to be set up for a set period of time, the information that needs to be submitted to HMRC, the impact of salary sacrifice on payroll, earnings–related payments and pension or retirement scheme payments.
In particular the following points should be noted:
- In order for the sacrifice to be effective so that the new benefit is taxed and the sacrifice benefits are not, then the employee must not be able to give up that benefit and return to the salary comparatively easily. There must not be a right to revert to the salary and it must be clear what the employee is actually entitled to during the period of the scheme.
- The salary sacrifice requires a variation of the employee's terms and conditions which relate to remuneration and therefore any ending of the salary sacrifice scheme will require further variation to the employee's terms and conditions.
- Employers are not obliged to notify HMRC that a scheme has been put in place but employers may wish to ask HMRC to confirm the correct tax treatment of the arrangement. In which case, HMRC will require evidence that the terms and conditions of the employee have been varied and also evidence that salary has actually been sacrificed by way of payslips both before and after the variation.
- Employers should consider the impact of salary sacrifice on statutory earnings–related payments and also on pension scheme or retirement benefits payments.
- The salary sacrifice scheme cannot take an employee's payment below the national minimum wage.