02 Jun 2025
We are aware that the current UK Government is actively seeking to close tax incentives and the background to the report states:
‘The growth [of salary exchange schemes] has resulted in an increasing cost to the Exchequer and creates an uneven playing field between employees and employers who use such arrangements and benefit from the tax and NI advantages, and those who don’t.’
With the Chancellor looking to plug the much referenced multi-billion hole in public finances, this research suggests Salary Exchange is firmly on the agenda.
The risk for some employers may be that if there is currently no scheme in place, and if you don’t act quickly, you will lose the ability to establish a Salary Exchange Scheme for current and/or future employees.
The research involved interviews with 51 firms, 41 of which offered salary sacrifice and 10 of which did not. It found that employers were broadly positive about salary sacrifice and thought it helped retain employees as part of the overall benefits package. Three scenarios were presented to the employers: removing the NI exemption for both employer and employee, the income tax exemption for employees on salary sacrifice, and the NI exemption, but up to a specific level of exchange (£2000).
The research identifies that, in addition to Employers being averse to the Government changing any of the existing Salary Exchange rules, many employers are aware of the pension savings gap, the importance of Workplace Pension Schemes and the need to encourage employees to save towards retirement.
“It’s tax efficient both for the company and the employee… If it [salary sacrifice] were to go away, it would be an additional cost of £600 to 700k per annum to the company in National Insurance.” (Finance Director, Large employer, Construction sector, Offered salary sacrifice)”
“Our employees are very behind our pension scheme; it would probably be [regarded as] one of the best benefits they see that we offer.” (Assistant HR Manager, Large employer, Manufacturing sector, Offered salary sacrifice)”
The paper identifies the importance of both Salary Exchange and Workplace Pension schemes. A link to the research paper is available below, if you have any questions on the content of HMRC’s research paper or on establishing Salary Exchange schemes then please contact the Team at Wealth Professional.
