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HMRC internal manual

Employment Income Manual

Salary sacrifice: conditions for successful salary sacrifice: effectiveness of contractual arrangement

Section 62 ITEPA 2003

From 6 April 2017, the Income Tax and NICs advantages where benefits in kind are provided through salary sacrifice arrangements (described in the Finance Act 2017 as “optional remuneration arrangements”) are largely withdrawn. Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000.

Transitional provisions apply for a limited period. For further details see EIM44030.

Certain benefits in kind are excluded from the changes. For further details see EIM44130.

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

The following aspects should be considered when deciding if the scheme is effective

  • what is the date of the change in the remuneration package? Changes cannot be retrospective, (See EIM42765)
  • has the employee’s contractual entitlement to cash been reduced and replaced with a benefit? (See EIM42766)
  • is there the right within the contract to return to the original remuneration package? What conditions, if any, have to be met in order to return to the original remuneration package? (See EIM42767)
  • is the benefit exempt from charge to income tax or just exempt under the benefits code? (See EIM42755)
  • does the provided benefit satisfy the conditions for exemption from tax and/or NIC? (See EIM42770)
  • has the scheme been implemented? (See EIM42770)
  • is the correct amount of tax and NIC being accounted for?
  • the National Minimum Wage (NMW) is a consideration, as the cash wage should not fall below a set figure. Apart from living accommodation, benefits in kind do not count towards the NMW. It makes no difference whether or not the benefit is taxed