Salary Sacrifice: It’s Not Dead, But it is Evolving

The History of the Benefit and Its Potential Future

In this blog, we’ll be discussing the history of salary sacrifice and its future. Salary Sacrifice has seen huge changes. From unrivalled growth 10 years ago and massive expansion of the offering to a complete review by HMRC. (Which many thought might be its terminal.) Even with its turbulent rise, it’s not a benefit with as short a lifespan as some might have expected. However, it is one that is always evolving.

The History of Salary Sacrifice

Salary Sacrifice first came about around 20 years ago. It was introduced as a way of employees adding flexibility into their benefits package at no cost to the employer.

In an informal state, Salary Sacrifice has been with us since the 1970s. A time when employers couldn’t give pay rises due to the government policies designed to control huge inflation. Valued employees under financial pressure, but highly regarded by their bosses, were provided opportunities to benefit in other ways. To overcome these constraints, employees asked for everything from more holiday to enhanced pension, instead of pay increases. Thus, Salary Sacrifice, although not named as such, was born.

In the last decade, the benefit increased to a point where employees were funding everything from fridge freezers to wine. This was drawing attention from HMRC who were concerned about the many employees paying tax, subsidising the few who sacrificed for a classic Merlot or 70-inch plasma. This led to a big change in 2017 when the government took measures to ensure that tax revenue was preserved. They ensured that this was also maintained by benefits through business.

Where is it now?

The benefits have always been about much more than the tax saving. There’s the convenience of ordering from your desk and paying via payroll; cost savings leveraging corporate buying power and funding rates; assistance for everything from health to cars through the employer; and of course, the NI savings.

HMRC did ringfence and protect many arrangements, and did allow employees to retain corporate savings and employees NI savings. All this while amending benefits to introduce an employee benefits tax. This was to remove the tax-saving and employer NI charge to remove the employers NI saving.

For some benefits, such as cars, childcare and pensions, little has changed. Cars have always been taxable, and that will continue. The biggest savings are continuing to be made on the greenest cars. This comes with a bonus of policy and manufacturer innovations, which will make green cars incredibly good value from 2020. Employees will be able to run a pure electric car with 300 miles range for the same cost they currently spend on diesel!

Traditional Salary Sacrifice continues to be a mainstay of every employee benefits specialist. There are increased opportunities for mental/financial wellbeing support for employees, which is increasingly dominating the HR agenda. Consider this with employers need for differentiating themselves in the battle to recruit and retain talent. Salary Sacrifice has a huge role in the future, whether that be for an iPad or an I-PACE.

The Future of Salary Sacrifice?

It looks highly likely that Salary Sacrifice will continue to be a staple benefit for the foreseeable future. Why not? There are endless perks for employee and employer alike, with mostly no costs and an easy implementation process. Especially with products like cars, where their capabilities are growing every single year.


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