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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Salary sacrifice: conditions for successful salary sacrifice: entitlement to cash

Section 62 ITEPA 2003

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

The second condition concerns the true construction of the revised contractual arrangement between the employer and the employee. See EIM42753 for an explanation of how changes may be made. When the employer and employee have changed the remuneration package they will have achieved one of the following two results:

  • they may genuinely have reduced the employee’s entitlement to cash remuneration in exchange for provision of a benefit, a successful salary sacrifice, or
  • they may have continued the employee’s entitlement to the original level of cash remuneration. Under the new arrangement the employee is merely asking the employer to apply part of the cash remuneration on the employee’s behalf in providing a benefit for the employee. This is not a successful salary sacrifice.

In practice, it may not be easy to decide which of these situations applies because:

  • it can be difficult to get all the facts as the revised contractual arrangements between employer and employee may be partly or wholly verbal agreements and
  • when we have all the facts it can be difficult to decide legally the true construction of the agreement.

Some remuneration is discretionary, for example some non-contractual bonuses. By definition discretionary remuneration is not part of a contractual arrangement. So you do not have to consider this condition for discretionary remuneration.

Salary Sacrifice is a matter of agreement between the employer and the employee. The role of the Revenue is to consider whether the arrangement is effective and the tax and NIC, which follow from this agreement.

If an employer requests advice in organising a salary sacrifice, explain that this is a matter between the business and the employee. The Revenue cannot give advice on the terms and conditions of an employee’s contract. Information on salary sacrifice is available to the public on the HMRC website. It can be found amongst ‘publications’ under the heading of ‘specialist’. The web address is