Making use of Salary Sacrifice

Given the recent increase in national insurance, many employees will be looking to their April payslip and seeing their take home pay decrease. This is set to continue for the first couple of months of this tax year until the increased payment thresholds apply, and throughout the tax year for those earning above £34,000.

Employers are also not necessarily in the financial position post pandemic to increase salaries in line with rising inflation levels and so they are turning to other methods of providing rewards and incentives to their staff.

One way to do this effectively is salary sacrifice.

Salary sacrifice has been greatly reduced over the years and so there are only limited circumstances when this will apply:

• Pension contributions
• Cycles / cyclists’ safety equipment
• Qualifying low emission cars (those with CO2 emissions of 75g/km or under)

Where your business is not yet offering the ability to sacrifice pay in return for the above benefits, national insurance saving opportunities are being missed.

Taking each of the opportunities in turn, we provide a simple example of where an employee can obtain more value by means of sacrifice.

The employee moves from contributing into the employer’s pension from their post-tax and NI pay, to giving up the amount of salary they wish to contribute, to save the national insurance cost. For employees this will result in a saving of between 3.25% and 13.25% (lower savings where they are a higher marginal rate payer).
Employers also save 14.95% on the amount no longer received as salary. Some employers also offer an additional incentive to switch to salary sacrifice by contributing an additional percentage of their NI savings into the employee’s pension pot.

Cycle to Work Schemes and Equipment
For those employees able to regularly commute by bike into the office, a cycle to work scheme could be the way to keep that employee incentivised. By sacrificing salary for wanted add-ons, over and above the tax free thresholds, the employee is given greater freedom to select the bike that best matches their style.

Low emission cars
Perhaps one of the more beneficial sacrifices for those employees already in receipt of a car allowance or traditional company car package, by sacrificing an amount of salary for a low emission or even fully electric vehicle, you have not only the NI savings as mentioned above, but the additional saving of moving income from a 20/40/45% tax band into a benefit in kind rate as low as 2%.
Low emission vehicles not only cost less over the lifetime of the vehicle than your traditional engine, but also boast green credentials for your business.

If the above suggests sound like they may work for your employee population, please do not hesitate to get in touch to discuss with our employment tax experts who will talk you through our one stop shop service for salary sacrifice.

Get In Touch


Get in touch with one of our experts today