UK Has No Plans To Axe Salary Sacrifice Schemes

by Robert Lee, Tax-News.com, London

01 December 2004

Reports indicated this week that the UK Treasury has no plans to shut down so-called salary sacrifice schemes, used to reduce the amount of National Insurance contributions paid by employers on behalf of employees.

Under the scheme, which has been adopted by a plethora of large firms from British Telecom to Ernst & Young, employers offer to pay for staff pension contributions in return for an equivalent cut in their salary, thus reducing the amount of NI contributions that the employer has to make.

Companies using salary sacrifice schemes stand to make significant cost savings. For example, BT has indicated that the scheme will save it £10 million per year in NI contributions, while Ernst & Young expects to save £840,000.

With speculation rife that Chancellor Gordon Brown is preparing a fresh crackdown on corporate tax avoidance in the next budget, many had feared that salary sacrifice schemes would be shut down as part of reforms to the pension system due to come into effect in 2006.

However, according to a Treasury spokesman, the Chancellor has no intention of tampering with the scheme which, at any rate, is part of employment law rather than tax law.

“Salary sacrifice is a matter of employment law and is a contract between the employer and the employee," the spokesman confirmed in a Times report.

"It is not a matter for the Treasury,” he added.

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