The rules for salary sacrifice arrangements changed with effect from 6 April 2017 and HMRC have updated their guidance for employers.

The idea behind salary sacrifice schemes is pretty straight forward. Basically, you accept a slightly lower salary – hence salary sacrifice scheme – and then in return your employer gives you some kind of benefit, i.e. one that is non-cash based. For instance, this could be childcare vouchers or increased pension contributions. Once you sign up to a salary sacrifice scheme, your overall pay is lower so you pay less tax and National Insurance.

Apart from 5 exceptions the amount assessed as employment income for new salary sacrifice arrangements is now the greater of the salary foregone and the taxable benefit as set out in the tax legislation.

Fortunately, the two most common arrangements are unaffected by the changes – childcare vouchers and pension contributions. The HMRC guidance reminds us of the importance of amending the employee’s contractual salary before the next salary payment. Remember also that the employee’s salary cannot be reduced below National Minimum Wage. And rememeber, if a benefit is included contractually as part of a salary sacrifice scheme, it can’t then be treated as a benefit in kind.