Paul from M P Accountants Northamptonshire discusses the conditions which must be in place for salary sacrifice to be effective for tax purposes.
Increases in NIC have focused attention on ways to save or avoid NIC. One of these methods is salary sacrifice which occurs where salary is sacrificed in return for a non cash benefit.
HMRC have published guidance notes which set out when a sacrifice will be effective for tax purposes and when it will not.
The conditions which must be in place for a salary sacrifice to be effective for tax purposes are conditions which would indicate that the contractual right to cash pay has been reduced. The two conditions which must be met are;
- The potential future remuneration must be given up before it is treated as received for tax and NIC purposes
- The true construction of the revised contractual arrangement between employer and employee must be that the employee is entitled to lower cash remuneration and a benefit in kind.
Arrangements will not be effective if they amount to the employee asking the employer to apply part of his cash remuneration to the payment for a benefit on the employees behalf.
At M P Accountants Kettering, Corby, Northampton and Market Harborough are conveniently located near to our premises in Lamport although we have clients from all over the UK. We are a firm of Chartered Certified Accountants ensuring you receive a professional and competent service at all times.
If you need any advice regarding salary sacrifice losses or any other accounting or taxation matters please don’t hesitate to contact us.