What is it?
Salary sacrifice is an arrangement where an employee
agrees to give up the right to receive part of their
salary. In exchange, the employer agrees to provide
a non-cash benefit instead.
Frequently, this employer benefit is a pension payment,
but it could also fund child care or certain other
benefits.
There are some fundamental steps that need to be
completed to establish a Salary Sacrifice pension
arrangement.
1
The arrangement
must be evidenced in writing.
2
It must be agreement (not an
instruction) by both employer and employee.
3
Separate documentation should
record the employer contribution to the pension
scheme.
4
It should be effective before
the employee is legally entitled to the remuneration.
5
Any salary sacrifice of £5,000
per annum or greater per member in a tax year
must be reported to the local Tax Office.
So
why go to all the trouble?
There are savings to be made in both employee's
and employer's National Insurance contributions.
Please note this a brief simplified explanation
based on our current understanding of the Inland
Revenue position which is subject to change at any
time. It is not intended to be a definitive guide
and specific advice regarding your circumstances
should be sought to ensure it is suitable for you
and your company.
