What is salary sacrifice and how is it applied?

Salary sacrifice occurs when an employee agrees to give up part of their salary for an agreed period of time in exchange for a non-cash benefit, such as the supply of technology. As salary sacrifice is taken from gross salary (before tax) rather than net pay, the participant will not initially pay any tax or National Insurance on the salary sacrifice amount. 

However, the provision of the equipment is a taxable Benefit In Kind (BIK) that needs to be reported to HMRC on a P11D benefits form at the end of the tax year. 

A P11D form is used by you to report any employee expenses, Payments and Benefits to HMRC, e.g. technology equipment, company car and private health insurance. Therefore, HMRC will recover the tax due, in arrears, via a change in the participants tax code the following tax year (April 6 th – April 5th), the participant will still benefit from an NIC saving; up to 12% for basic rate taxpayers and 2% for higher rate taxpayers. 

Example Savings
Techscheme Package Price £619.00
12% National insurance Contirbution (NIC) Saving £74.28
20% Income Tax Saving £123.80
Employee P11d Charge £123.80 
Total Purchase Price £544.72

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