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HMRC internal manual

Employment Income Manual

Salary sacrifice: contributions to a registered pension scheme: practical considerations

Sections 62 ITEPA 2003 and Section 188 FA 2004

For information on salary sacrifice generally see EIM42750 onwards.

A common form of salary sacrifice is where rights to future cash remuneration are given up in return for the employer paying a sum to a registered pension scheme for the employee’s benefit.

Where pension contributions are involved, the income tax liability of the employee will often not be affected whether or not the salary sacrifice succeeds. If the salary sacrifice does not succeed the pension contributions will be treated as employee contributions. The employee will get full tax relief at his or her top rate of tax on the contribution. This is the same overall income tax liability as if the salary sacrifice had succeeded. For the income tax effects of a salary sacrifice for sums paid to a registered pension scheme see EIM42780.

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salary sacrifice arrangements (described in the Finance Act 2017 as “optional remuneration arrangements”) are largely withdrawn.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.

Employer contributions into registered pension schemes and employer provided pensions advice are excluded from the April 2017 changes. Payments made under successful salary sacrifice arrangements continue to be regarded as employer contributions and not taxable on the employee.