Salary sacrifice schemes benefit both employers and employees. They truly are a win-win outcome for both.
The schemes are voluntary and result in the employee giving up (sacrificing) part of the cash element of their salary, on which both PAYE and NICs are due, and exchanging the cash element for non-cash related benefits.
Salary Sacrifice Services:
The employee benefits as the non-cash benefits are wholly or partially exempt from tax and NICs – so they pay tax on a reduced amount of their gross salary and have access to benefits at a reduced cost.
The employer benefits from having a lower employer NI liability for each employee who signs up to scheme.
Employers have a responsibility to ensure that employee salaries and benefits adhere to PAYE tax and national insurance rules.
Taxation on wages, salaries, company cars, mileage allowances and private health insurance all need to comply.
There are a range of non-cash benefits that can comprise salary sacrifice schemes, these include:
Childcare vouchers e.g. to help employees pay for nursery, day-care, holiday club fees, Pension schemes.
Holiday purchase schemes – e.g. each employee could be given 20 annual days with an additional 10 available for purchase.
Company car schemes – usually on a leasing basis.
The penalty for incorrect compliance may be interest charged by HMRC or possibly penalties of up to 100% of the tax and national insurance involved.