Salary sacrifice: how to change the small print

With the disruption caused by COVID-19, employers may find themselves asked to change the terms of a salary sacrifice arrangement. But it’s important that businesses tread carefully on this matter; varying a salary sacrifice arrangement could result in expected tax and NICs advantages being put at risk.

In this article, Clayton & Brewill explains what you need to know when it comes to making changes.

Salary sacrifice: the basics

Salary sacrifice arrangements are agreements that reduce the amount your employee gets as cash remuneration in return for some sort of non-cash benefit.

salary sacrifice - piggy bank on a calculatorThe number of benefits that can be provided free of income tax and National Insurance Contributions (NICs) under salary sacrifice schemes has been steadily eroded in recent years. The prime advantage is broadly now restricted to: employer pension contributions to approved schemes, pensions advice, cycle to work schemes, qualifying low emission cars and certain specific childcare provision.

With these particular benefits, reducing gross pay through salary sacrifice can reduce employee NICs and income tax liability. For you as employer, there should also be a saving in employer NICs. You can of course offer benefits other than these, but the advantage is likely to accrue from group purchase discounts for things like gym facilities, rather than tax or NICs savings.

Tip: Make sure you remain minimum wage compliant when setting up any salary sacrifice arrangement. Check that the arrangement doesn’t take cash earnings below the relevant minimum wage rate. 

Making changes

Salary sacrifice arrangements are based on the idea that the employee has permanently given up the right to part of their salary; the terms of the sacrifice, and details of the non-cash benefit received in exchange, are formally set out in the employment contract. In practice, arrangements tend to apply for a minimum period, usually a year.

However, the need for permanence obviously creates an issue if you are asked to alter the arrangement. As a general rule, if an employee swaps between cash earnings and a non-cash benefit at will, any expected tax and NICs advantages are at risk. HMRC does acknowledge, however, that in some circumstances, a salary sacrifice arrangement can be varied or discontinued without adverse effect. This exception is for ‘lifestyle’ events:

  • marriage
  • divorce
  • a partner becoming redundant or pregnant.

HMRC has also now expanded the list to include changes to circumstances directly arising as a result of the pandemic.

When varying a salary sacrifice arrangement, the employment contract is key. To change the terms of the salary sacrifice agreement, the employment contract must be changed first; it should set out clearly entitlement to cash salary and non-cash benefit at any given time.

Working with you

With HMRC’s emphasis on the employment contract being varied before changes are implemented, and the right to salary being given up before an employee is entitled to receive the remuneration, this is an area to get right first time. We are always happy to advise on salary sacrifice or any other aspect of tax efficient remuneration.

For further guidance on salary sacrifice, please do get in touch with the team at Clayton & Brewill. You can call us on 0115 950 3044 or send an enquiry here.

Share this post

How can we help?


Whether you are a limited company, a sole trader or partnership, Clayton & Brewill can take care of your accountancy needs, giving you valuable insight and support and leaving you free to concentrate on other areas of your business.

Corporate tax

Clayton & Brewill offers efficient and cost-effective tax advice and support for owner-managed businesses, sole traders and partnerships.

Personal tax

Specialist, personal advice on income tax, capital gains tax and inheritance tax.


Clayton & Brewill can help you comply with your statutory audit requirements as well as working with you to use the annual audit to identify areas for improvement and growth.