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HMRC internal manual

Business Income Manual

Specific deductions: pension schemes: employer contributions linked to salary sacrifice arrangements

A salary sacrifice happens when an employee gives up the right to part of the cash remuneration due under their contract of employment. An employee may also sacrifice a one-off item such as a bonus.

Usually, the sacrifice is made in return for the employer’s agreement to provide the employee with some form of non-cash benefit, such as an increased contribution by the employer to a pension scheme. An increased pension contribution by an employer resulting from a salary sacrifice arrangement of the type set out at EIM42750 onwards, is wholly and exclusively for the purposes of the trade and allowable as a deduction in arriving at the employer’s taxable trade profits.