17 Feb 2026
HMRC had suggested the reform would mostly touch those sacrificing more than £2,000 a year, with 4.3m of 7.7m users effectively protected.
The OBR’s analysis warns that companies will likely reshape compensation across workforces (lowering wages and adjusting pension contributions) so the burden spreads beyond the “high earners exploiting tax-free bonuses” narrative. The OBR’s behavioural assumption is blunt: about 76% of the cost will be passed to employees through reduced wages.
The policy begins in April 2029, when contributions above £2,000 will face standard NI rates. The argument for the policy is structural. Salary sacrifice has grown into a large, uneven tax base reducer; capping it is a classic base-broadening that doesn’t require raising headline rates. The argument against is behavioural and distributive: if employers flatten wage growth to absorb their side of NI, the pain becomes diffuse, potentially landing on workers on modest incomes who use salary sacrifice simply because it’s the default, not because they’re gaming the system. The broader point is about how tax policy travels through employers. Governments can write rules aimed at a slice of the workforce; the labour market often transmits them across the whole pay structure. The OBR is essentially saying: don’t read the policy through an individual lens alone – read it through HR departments, reward committees and wage setting behaviour. That’s where the real incidence will be decided.
With over three years to prepare, employers should take proactive steps now to understand the implications of the change and ensure a smooth transition. Early planning, clear communication, and thoughtful reward strategy realignment will be essential. Employers that move early may be best placed to navigate the transition without damaging the trust and confidence of their employees.
If you’d like to discuss how to begin implementing a controlled redesign of your employee remuneration package, contact David Webster at Wealth Professional dwebster@wealthprofessional.co.uk
