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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Salary sacrifice: what is a salary sacrifice: arrangement of guidance

Section 62 ITEPA 2003

A salary sacrifice happens when an employee gives up the right to part of the cash remuneration due under his or her contract of employment. Usually, the sacrifice is made in return for the employer’s agreement to provide the employee with some form of non-cash benefit. The sacrifice is achieved by varying the employee’s terms and conditions of employment relating to remuneration. For example, an employee’s current contract provides for cash remuneration of £40,000 a year with no benefits. The employee agrees with the employer that for the future the employee will be paid cash remuneration of £34800 a year and 52 childcare vouchers a year, each with a face value of £100. This would be referred to as a salary sacrifice.

An employee may also sacrifice a one-off item such as a bonus.

In the past, the term salary sacrifice was mainly used to refer to the giving up of rights to future cash remuneration in return for the employer’s contributions to a registered pension scheme. Now it is used to describe any situation where an employee gives up a right to future cash remuneration in return for a benefit in kind.

Arrangement of guidance

EIM42752 Reason for salary sacrifice
   
EIM42753 How changes to the employment contract are made
EIM42755 Income tax effects of a salary sacrifice
EIM42760 Conditions for successful salary sacrifice: summary
EIM42765 Conditions for successful salary sacrifice: timing
EIM42766 Conditions for successful salary sacrifice: entitlement to cash
EIM42767 Conditions for successful sacrifice: right to revert to original salary
EIM42769 Conditions for successful salary sacrifice: effectiveness of contractual arrangement
EIM42770 Conditions for successful salary sacrifice: implementation of contractual arrangement: payslip information
EIM42771 Conditions for successful salary sacrifice: implementation of contractual arrangement : reference or notional salary
EIM42772 Approval of scheme: before the scheme is set up and in operation
EIM42773 Approval of scheme: scheme set up and in operation
EIM42775 Contributions to a registered pension scheme: practical considerations
EIM42776 Salary sacrifice: is the sacrifice effective: frequently asked question
EIM42777 Salary sacrifice: implementation of contractual arrangement: other points to consider
EIM42778 Salary sacrifice: other points to consider: application of the tax/NIC exemption
EIM42780 Contributions to a registered pension scheme: income tax effects
EIM42785 Contributions to a registered pension scheme: example of successful salary sacrifice
EIM42786 Contributions to a registered pension scheme: example of unsuccessful salary sacrifice
EIM42790 Salary sacrifice: example of an unsuccessful sacrifice