Springfords LLP News

To receive our quarterly e-newsletter filled with the kind of news you can use, register here.

Enhanced Remuneration

21 June 2011

National Insurance rates for both employer and employee contributions rose by 1% from 6 April 2011, to 13.8% and 12% respectively.  This is in addition to the 50% rate of income tax introduced from 6 April 2010.  In order to mitigate the spiralling tax costs, employers are increasingly taking advantage of salary sacrifice type arrangements to offer their employees more tax efficient remuneration packages.

So What Is Salary Sacrifice?

Salary sacrifice is an option that enables employees to give up part of their existing salary in return for more tax efficient non cash benefits. 

They can be a great way of retaining key employees by enhancing the package offered to them without increasing the employers’ employment costs.

Salaries attract income tax and both employees and employers national insurance, making them a high cost remuneration option for both employee and employer.  However, certain benefits in kind can be given tax-free (or at least at a reduced tax cost).

Examples of Salary Sacrifice Arrangements

Exam Fees/Professional Costs

Where an employer covers the costs of work related training the costs paid for by the employer are tax-free benefits.

Where the employer agrees to pay for non-work related payments a benefit does arise but, provided the employer arranges and pays for the training directly with the trainer, the benefit does not attract employees national insurance.

An employee who is thinking of undertaking a training programme may therefore be keen to agree a reduced salary in return for the employer meeting the training costs (which can include books and travel costs).

Pension Contributions

Sacrificing salary in return for increased employer pension contributions can be attractive for both employee and employer. 

When offering pension contributions as part of a salary sacrifice arrangement you need to consider whether a ‘grossing up’ calculation is needed.  If the employee had made the pension contribution personally, they may have been entitled to income tax relief on the contribution.  The loss of tax relief may therefore need to be reflected in the value of the employer contribution in order to ensure the employee is still receiving the same overall value from their remuneration package.

Employer pension contributions can attract a national insurance saving for the employer.  The employer often keeps this saving.

Employer Supported Childcare

Provided certain conditions are met, an employer can provide tax-free childcare to employees, making them a very common benefit to be offered under salary sacrifice due to the tax and national insurance savings for both employee and employer.

There are various options available, such as employer workplace facilities, contracting with commercial childcare providers or by providing employees with childcare vouchers.  Each option has its own set of qualifying conditions and you should seek tax advice to ensure the scheme qualifies for tax relief.

Low Emission ‘Company’ Cars

Cars are often perceived to be a highly expensive way to remunerate employees, giving rise to significant benefit in kind taxes for employee and employer alike, as well as the additional motor vehicle overheads for the employer.  However, low emission cars can be more cost effective than you might expect.

If the car is outright owned or under hire purchase agreement the employer will be able to claim capital allowances on the capital costs.  Low Co2 emission cars can attract special First Year Allowances at 100% of the cost of the vehicle, effectively giving tax relief to the employer for the full cost of the vehicle on the date of acquisition.

Low Co2 emission cars can also give rise to fairly low benefit in kind values as the list price of the car is multiplied by lower percentage rates.  The appropriate percentages are: 

CO2 emissions


Electric cars (no emissions)


1-75 g/km




>121 g/km



The employer can attract lower finance costs for the acquisition of the car and better deals on insurance and servicing.  The cost of owning the car through the business can therefore be lower than through personal ownership. 

Employees may therefore be happy to sacrifice their salary in order to receive a company car and there can be savings (both commercial and tax) for both employer and employee.


Other tax efficient benefits might include:

  • Employee share schemes
  • Medical/Dental treatment or insurance
  • Car parking space provided near or at the employees workplace
  • Cycles and cyclist’s safety equipment loaned (not given) to employees
  • Mobile phones
  • Computers loaned (not given) to an employee for business use where private use is insignificant
  • Relocation expenses up to £8,000 where an employee changes their main residence by reason of their employment duties.

(This list is by no means exhaustive and we would be happy to provide further information regarding any aspect of employee remuneration upon request.)


In order to ensure the correct tax outcome is achieved, it is important to ensure the salary sacrifice arrangement is correctly implemented.  If care isn’t taken, under certain circumstances, the salary sacrifice option can itself become a taxable benefit.

Not all employees will be eligible for salary sacrifice arrangements and it is important to seek advice before offering the plan to employees.

It is also vital to ensure the employment contracts are properly varied, that the timing of the variation and the receipt of the benefits is right and that the remuneration package is properly reported to HMRC.

For more information on how to set up salary sacrifice arrangements and how these could benefit your business please contact or your usual Springfords adviser.

Contact Us
  terms & privacy
Part of Baldwins