25 May 2022
How To Reduce Your Company’s Tax Bill With A Salary Sacrifice Scheme
The headline benefits of a salary sacrifice scheme rightly focus on the employee. After all, it is their salary being sacrificed, and they are receiving the benefits. In addition to the non-cash benefit being received, the salary sacrifice is taken on the employee’s gross salary, so the nett result is that they pay less national insurance and income tax deductions also. It may be of no concern to the employee, but their sacrifice also helps the employer, hence the increasing popularity of salary sacrifice schemes in businesses across the UK.
What savings can employers make through salary sacrifice schemes?
Because the employee can save up to 13.8% of their national insurance contributions through a salary sacrifice scheme, so the employer can also make savings on any deductions from the employees’ salaries. The national insurance contributions paid by the employer are also reduced by a salary sacrifice scheme.
There are some important things relating to tax which an employer should consider when setting up a salary sacrifice scheme:
- Benefits must be reported to HMRC at the end of the tax year.
- An employee’s contract should be amended whenever they opt in or out of a salary sacrifice scheme to clearly state the non-cash benefits and the consequential effect on tax and national insurance.
- The employer should make sure their employees are aware that contributing to a salary sacrifice scheme can affect their entitlement to earnings-related benefits, such as maternity allowance and additional state pension.
- The salary reduction must not take the employee’s wage below the minimum wage limit.
It is advisable for employers to seek guidance from HMRC where they are unclear about tax and national insurance arrangements, however, it should be noted that the salary sacrifice car scheme offered by Pink Salary Exchange is HMRC-approved and its implementation comes with full assistance on tax and national insurance arrangements, to ensure these are fully compliant.
Further ways a business can reduce its tax bill with salary sacrifice schemes
One of the most popular salary sacrifice schemes is the provision of low-emission vehicles as a non-cash benefit, or at least the portion of salary sacrificed is put towards the lease cost through the scheme. For a business running a fleet of vehicles this can be a huge benefit, because fully battery-powered electric vehicles are exempt from paying road tax in the UK.
If your business runs a number of executive cars, or delivery vehicles, or has a fleet of vans transporting people, materials and equipment in the course of your business, this can be a huge saving in tax costs. This benefit is provided to promote the use of electric vehicles, and there are other cost benefits to this also in terms of service and maintenance and fuel cost savings, but reducing the tax bill is hugely attractive to a business competing in today’s economic climate.
Getting help and support with your salary sacrifice car scheme
Pink Salary Exchange can help with the implementation of your salary sacrifice car scheme, offering a simple online registration process and access to a wealth of supporting material to help you administer and manage your scheme. This includes guidance on the tax and national insurance arrangements.
If you sign up with Pink Salary Exchange today, you can benefit financially along with your employees, and can also benefit from our experience of designing an industry-leading salary sacrifice scheme which is fully tax-compliant, so get in touch today.