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HMRC internal manual

Tax Credits Technical Manual

Income: Employment income rules: Salary sacrifice

A salary sacrifice happens when an employee gives up the right to receive part of the cash pay due under his or her contract of employment. Usually the sacrifice is made in return for the employer’s agreement to provide the employee with some form of non-cash benefit. The ‘sacrifice’ is achieved by varying the employee’s terms and conditions of employment relating to pay (see EIM 42774)

A salary sacrifice for childcare vouchers or the provision of an employer provided nursery place can reduce the relevant employment income figure for tax credits as the value of these benefits is not included as income. But any childcare costs declared for the childcare element of WTC would be reduced as those costs met by the employer are not relevant costs (see TCTM02630 and TCTM04225)


Note: With effect from 6 April 2017 the way in which many salary sacrifice and benefit in kind schemes are taxed will change, which means that some tax credit claimants will see an increase in their taxable income.

For the purposes of tax credits, where one of these schemes is in operation the taxable income figure should be used.