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HMRC internal manual

Employment Income Manual

Salary sacrifice: conditions for successful salary sacrifice: timing

Section 62 ITEPA 2003

For a summary of the conditions that have to be met for a successful salary sacrifice see EIM42760.

The first condition concerns the timing of changes to the employment contract.. Entitlement to future remuneration must be given up before it is treated as received for employment income purposes. Once earnings have been “received” for employment income purposes they are taxable even if a payment is not actually paid over. (See EIM42705 onwards.)

In practice this means that the employee who is entering into a salary sacrifice arrangement must agree to vary the employment contract well in advance of the date when the first payment under the new arrangement is due to be made. If the contractual changes have not been completed by that date the terms of the previous contract continue to be in force. The employee is still entitled to receive, and is therefore taxable on, the previous higher salary, even though the smaller, post- sacrifice amount is paid.

For details of when remuneration is treated as received for employment income purposes see EIM42260.