A salary sacrifice arrangement is an agreement to reduce an employee's entitlement to cash pay, usually in return for a non-cash benefit. The 'sacrifice' is achieved by varying an employee’s terms and conditions of employment relating to pay. Salary sacrifice is a matter of employment law, not tax law. Where an employee agrees to a salary sacrifice in return for a non-cash benefit, they give up their contractual right to future cash remuneration.
Under a salary sacrifice scheme, the council allows you to purchase household or electrical items under a salary sacrifice arrangement. This means that your monthly gross salary will be reduced, resulting in an initial saving on tax however your tax code may be adjusted the following tax year following your P11D submission, National Insurance and pension contributions.
The Home and Electronics scheme is open to both full and part-time staff, however, you must meet the criteria outlined below.
These criteria will be checked by Payroll/People Services before any salary sacrifice orders are approved.
You need to be a permanent and paid employee, or, if you are on a fixed-term contract, your contract of employment must be for a longer period than the proposed Salary Sacrifice Agreement.
Your gross salary after taking into account all salary sacrifice arrangements must be above the National Living Wage/National Minimum Wage for the duration of the Salary Sacrifice Agreement.
Overtime and any additional payments you may receive should not be included when you enter your gross annual salary into the online site unless it is contractual and guaranteed.
You must have successfully completed your probationary period – with a minimum six months of service with LCC.
The maximum value of the total Home and Electronics purchase is one month's gross salary (before tax – you can find this on your payslip). For example, if your gross salary (before deductions) on your payslip is £1,500 per month the total amount of goods ordered must not exceed this. This is to ensure that purchases are affordable and if you leave the Council there would be no outstanding debt as the balance could be recovered in your final salary.
The salary sacrifice repayment period can be either for a 12 or 24-month term.
We already offer some salary sacrifice schemes, such as cycle to work. In this scheme, your gross salary deductions do not affect your pension contributions, as the payments are taken out after your pension, tax and National Insurance contributions.
However, in the Vivup Home and Electronics they do. This means that an employee's monthly gross salary will be reduced, resulting in a saving in tax, National Insurance and pension contributions. This has implications on an employee's future pension, for further information, please see the impact of salary sacrifice on pensions arrangement guide.
Salary sacrifice schemes
Salary sacrifice is a workplace scheme where you give up some of your earnings each month in return for a non-cash benefit. The council offer a variety of schemes, including the cycle to work scheme, Vivup Home and Electronics and the Tusker Car Lease scheme. The tax and National Insurance advantages vary dependent on which scheme you use.
Taxable assets
When you order products through the Vivup Home and Electronic salary sacrifice scheme, these are initially paid for by Lancashire County Council. This means that they are classed as assets by HMRC.
Employees repay the council via a salary sacrifice arrangement over either 12 or 24 months and monthly repayments are deducted from the employee's gross salary (the amount before tax and NI is deducted).
Repayments
The monthly repayments are deducted before tax, NI and Pension are calculated so no tax, NI or Pension is calculated on this amount. This results in an initial saving of these deductions to the employee.
Tax implications
The non-cash benefit (the product purchased) is an asset and therefore tax is applied to the whole cost of the item when purchased in accordance with HMRC regulations. This is reported to HMRC on a P11D in July following the end of the tax year that the purchase was made in. You will need to pay the tax on the non-cash benefit (purchased product) to HMRC. The amount due will vary dependent on the value of the item/items and your personal tax allowance.
Collection of tax
HMRC will calculate the amount of tax due and where possible, adjust the individual's tax code in order to collect the tax. This may happen in the same year as the purchase was made and is controlled by HMRC internal processes.
The saving to the employee in respect of NI and pension remain; the amount of tax due is calculated at the same rate as if the non-cash benefit had been paid as a cash salary.
Contacting HM Revenue and Customs (HMRC)
You can speak to HMRC further about the collection of tax by calling 0300 200 3300 or visiting their website. You can also set up your personal tax account to check your records and manage your details.