How does Salary Sacrifice work?

1. The principle is simple; the employee agrees to reduce their salary (cash entitlement) in
return for a benefit.


2. HMRC will no longer see the salary that the employee has ‘sacrificed’ and so will only
apply tax and National Insurance to the remaining salary.


3. HMRC will then look to apply the tax rules to the benefit instead. If the benefit is taxed like
cash there is no point in using salary sacrifice.


4. If the employee’s contract is not changed then no salary sacrifice has taken place!