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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Salary sacrifice: implementation of contractual arrangement: other points to consider

Section 62 ITEPA 2003

For a summary of the conditions that have to be met for a successful salary sacrifice, see EIM42760. See also EIM42770 and EIM42771 for guidance on practical issues arising from the implementation of a salary sacrifice arrangement.

Other points to consider when a salary sacrifice arrangement is implemented

  • If the scheme involves childcare or childcare vouchers then the conditions for exemption must be met. (See EIM21905 and EIM16057). Is the agreement to provide childcare between the employee and the childminder or nursery. If so the employer by paying the cost directly is meeting the employee’s personal liability. (See EIM00580).
  • For a registered pension scheme the amount which can be contributed to the scheme is normally linked to the employee’s chargeable earnings. In consequence if the salary sacrifice results in some of the employee’s income no longer being taxable, then the amount of contribution, which can be made to the scheme, will also drop.
  • Does the scheme involve expenses or benefits, which are the subject of an existing dispensation? If it does then it could be that the benefits impact upon that dispensation. (See EIM30051).
  • A request for approval of a salary sacrifice arrangement may not seek confirmation of the taxation of whatever is provided in lieu of the salary given up. However, if the arrangement involves the provision of a non-cash benefit that may qualify for an exemption from tax then you should consider whether all the conditions related to that exemption are met. (See EIM42778)