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Salary Sacrifice Schemes: What Are They & Why Use Them?

by Thomas Nock Martin | Apr 20, 2022 | Tax

Salary Sacrifice Schemes: What Are The Benefits?

Personal allowances vary from one employee to another. But it is essentially the amount of income an individual is entitled to receive that’s completely free of tax. However, this amount decreases the higher the income. In fact, for every £2 that your total taxable income exceeds £100,000, the £12,570 personal allowance is reduced by £1. Although with a salary sacrifice scheme, you are offered an opportunity to avoid this personal allowance trap.

Today’s article will depict what salary sacrifice schemes are and why we recommend professionals use them. Here at ​​Thomas Nock Martin, we’re experts in taxation and accountancy. Our wealth of knowledge and experience makes us renowned in the West Midlands and afar. And with the advice given below, we can help you identify ways to reduce your taxes and ultimately take advantage of your entire personal allowance.

Related: Tax Planning Ideas For 2022

About Salary Sacrifice Schemes

What Is A Salary Sacrifice Scheme?

A salary sacrifice scheme is a contractual arrangement between an employer and an employee. It involves the employee sacrificing a portion of their pensionable pay for tax-free or low tax benefits. This can be undergone on request by the employee.

What Are Types Of Salary Sacrifice Schemes?

Now we know what is a salary sacrifice scheme, it’s essential to understand the main types of agreements.

Additional Pension Contributions

One of the first commonly known salary sacrifices schemes is APCs. This salary sacrifice pension scheme is a facility where employees can buy further local government pensions when they eventually retire. Pension contributions are not liable to income tax.

Company Cars

The second most typical scheme is an employer providing an electric company car in exchange for a lower salary. This is a cost-neutral option for companies who insist on offering company cars. It also allows a company to deduct VAT and reduce social security contributions, allowing an employee to fund the vehicle through payroll deductions.

What Are The Benefits Of Salary Sacrifice Schemes?

The main advantage of salary sacrifice schemes is that employees receive higher take-home pay. This is ultimately due to paying lower National Insurance. Your employee will also see a reduction in National Insurance contributions, which means there may be the scope of increasing your pension contributions from the money they are saving.

However, you must acknowledge whether a salary sacrifice scheme is suitable for you. This type of agreement can interfere with life cover provided by your employer, a defined benefit scheme, defined contribution scheme, house purchasing and state benefits.

Contact Thomas Nock Martin For Guidance

Here at Thomas Nock Martin, we can offer you professional advice and guidance on whether or not a salary sacrifice scheme is right for you. If suitable, we can assist you in setting up this arrangement correctly by amending your employment contract.

As renowned chartered accountants, we are widely recognised for our efforts in supporting working professionals in identifying ways to reduce their tax contributions. Therefore, ultimately managing their finances most efficiently and effectively. If you’re looking for a salary sacrifice scheme in the UK, you’ve come to the right place. Get in touch with our team today on 01384 261300 for further information.

If you found this blog useful, why not take a look at a previous one: Why Small Businesses Should Use An Accountant 

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