The benefits of salary sacrifice schemes.

We ask Jonathan Watts-Lay, Director, WEALTH at work, what he thinks are the main benefits of salary sacrifice schemes.

Jonathan Watts-Lay, Director, WEALTH at work, comments, “One way to save money is by paying for things through your company payroll using your pre-tax salary, so you pay less income tax and National Insurance. This is known as salary sacrifice and can offer employees significant savings. Higher rate tax payers can make a saving of 40% in income tax and 2% in National Insurance, whilst employees who pay tax at the basic rate can make a saving of 20% in income tax and 12% in National Insurance.”

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He continues, “Many people pay their pension contributions in this way, but it can also be used to pay for transport such as company cars, bikes, and bus passes, and even mobile phones, gym passes and health and dental care. However, many benefits such as mobile phones and company cars are now seen as ‘Benefits in Kind’, and whilst savings can still be made, many do now have high tax charges.”

He continues, “Tax free benefits however are still available on employer provided pension savings and pensions advice, certain types of employee share plans, and cycle to work schemes. Childcare vouchers and contracted childcare can also be paid for via salary sacrifice, although these arrangements are closed to new applicants. For those looking for a new car, salary sacrifice is one of the most cost-effective ways to drive an electric vehicle, as the benefit in kind value applied to electric cars is currently 2%. This means the income tax and National Insurance saving outweigh this relatively small ‘benefit in kind’ cost. Whereas the Benefit in Kind cost for drivers of petrol and diesel and cars can be up to 37%.”