The government should think long and hard before rewriting the rules around salary sacrifice as they may harm the competitiveness of UK firms at an already difficult time.

A salary sacrifice arrangement is an agreement between an employer and an employee to change the terms of the employment contract to reduce the employee’s entitlement to cash pay. This sacrifice of cash entitlement is usually made in return for some form of non-cash benefit. The impact on tax and NICs payable for any employee will depend on the pay and non-cash benefits that make up the salary sacrifice arrangement.

Salary sacrifice schemes are an essential part of remuneration strategies for businesses. They allow employers to attract and retain the best employees. Each employee has different requirements and the ability for individual employees to negotiate their own package is now an essential part of recruitment.

While we are aware of publicised cases of abuse of the rules, in the experience of our members, most salary sacrifice schemes are being used in a legitimate manner and not to avoid tax.

The reported changes will lead to scenarios where one employee might be on the same flexible benefits package as another employee but they are taxed differently simply due to whether the package was negotiated before or after joining the firm. This introduces considerable complications to this area and also increase the probability of the employer getting it wrong. It is most certainly not simplification.

On a positive note, it is welcome at least that the government has been clear throughout its review of this area that any changes will not affect salary sacrificed in return for a contribution to their pension scheme by an employer, or salary sacrifice involving childcare or health benefits, including the Cycle to Work scheme.

About the author

Yvette Nunn is co-chair of the ATT’s Technical Steering Group and owner partner and director at Berkeley Associates