A salary sacrifice is exactly what it sounds like – a partial sacrifice of an employee’s salary . But why would somebody want to do this? Well, employees can decide to sacrifice part of their salary, and receive something else in return. This is often in the form of a tax-free, non-cash benefit from their employer.

What are some examples of salary sacrifice schemes?

Some of the most common instances of non-cash benefit which motivate a salary sacrifice include:

How does the salary sacrifice process work?

Both the employer and the employee must agree to the salary sacrifice scheme, and the terms shown in the employee’s contract.

The employee has basically swapped part of their salary in exchange for something else. This means that their pay is lower, but they receive a non-monetary benefit to the same value instead.

Do I need to deduct tax for salary sacrifices?

The employee would normally pay tax and NI on their income. They’ll have a payslip which shows how much they are paid, and any deductions that have been made. If the employee receives a non-cash benefit in-exchange for a portion of their salary, they usually still have to pay tax and NI on the value of the benefit.

This is true for most types of benefits, such as company cars or gym memberships. They’re not shown on the payslip, and the employer is responsible for reporting the benefits in kind to HMRC, using a P11D.

There are some exceptions though.

Essential points for employers about salary sacrifice

The pros and cons of a salary sacrifice

Like everything, there are ups and downs to salary sacrifice schemes.

Main advantages
Main disadvantages

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About The Author

John Atherton

AAT Level 3 qualified, I specialise in providing payroll functions and services for a wide variety of clients and businesses.

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