Salary Sacrifice: A Tax-Efficient Way to Enhance Employee Benefits

With rising costs continuing to impact both businesses and employees, many employers are looking for ways to offer meaningful benefits without increasing overall spend.

One option that is often overlooked - but can be highly effective - is salary sacrifice.

What is salary sacrifice?

Salary sacrifice is an arrangement where an employee agrees to give up part of their gross salary in exchange for a non-cash benefit.

Common examples include:

• Pension contributions

• Electric vehicles

• Cycle to Work schemes
  

Because the exchange takes place before tax and National Insurance (NI), both the employee and employer can benefit from reduced tax liabilities.

Why is it worth considering?

Salary sacrifice can offer a practical way to improve benefits while managing costs.

For employers:

• Reduced employer National Insurance contributions

• Enhanced employee benefits without increasing salary costs

• Improved recruitment and retention
  

For employees:

• Lower income tax and NI payments

• Access to valuable benefits at a reduced cost

• Greater flexibility in how their remuneration is structured

  
  

At a time when cash flow and cost management are key concerns, these savings can make a real difference.

What about upcoming changes?

There has been significant attention on a proposed cap to National Insurance relief on pension contributions following the Autumn Budget 2025.

However, it’s important to note that this change will not take effect until 6 April 2029.

This means that, for now, the current tax advantages of salary sacrifice arrangements remain fully available.

Is salary sacrifice right for your business?

While salary sacrifice can be highly effective, it’s important to ensure that any arrangement is set up correctly and works for both the business and its employees.

Considerations include:

• Ensuring employees do not fall below minimum wage thresholds

• Choosing benefits that are genuinely valued by your team

• Understanding the overall tax and NI impact
  

Our view

Salary sacrifice is one of the most practical ways to deliver tax-efficient benefits - yet many businesses are not making full use of it.

With the current rules still in place for several years, there is a clear opportunity to review your approach and potentially unlock savings for both your business and your employees.

At SJC, Chartered Accountants we can help you model the numbers, compare options, and implement a structure that works in practice.

If you would like to explore how salary sacrifice could benefit your business, please get in touch.