The basic idea of Salary Sacrifice, is that you give up part of your salary each month, in order to purchase an allowed item from your employer.
The advantage is that the amount you sacrifice is exempt from tax and NI (Note: and possibly pension). E.g. sacrificing £100, may only actually cost you £69, (Note: the exact amount saved will depend on your Tax Band and NI Category).
E.g. using standard Tax and NI rates
- An employee earning £1000 a month, will pay Tax of £116, NI of £60.17 and Pension of £72.00, so you have a Net Pay of £751.83.
- If the employee then enters a Salary Sacrifice agreement to pay £100 a month to purchase child care vouchers or a computer, then a Deduction Code will need to be set against the employee with the fields Tax and NI ticked on Controls tab of Payroll Code Maintenance. (Note: Pensions tab also ticked if pension is not to be deducted).
- So the employee will have a payment of £1000 and a deduction of £100. This will calculate as Tax – £96.00, NI – £49.17 and Pension of £72.00.
- If it is decided that they employee should not have made the sacrifice last month, then the amounts can be corrected by putting a payment against the employee, with the same boxes ticked in the Controls tab, as the Salary Sacrifice deduction code had.
- So the employee will have payments for £1000 and £100. This will calculate as Tax – £136, NI – £71.17, Pension – £72 and Net – £820.83.