When does salary sacrifice gets paid ?

[heavenon]

Can someone with insight explain salary sacrifice ?
Let’s say I have been offered employment with 80k salary but I would like to sacrifice 30k of my salary to avoid having to pay 40% in tax.

Let’s say I would like to use my sacrificed salary portion to go towards a car purchase and luxury goods for example.

When would my salary sacrifice portion be credited/ used towards my purchases?

Upon signing the employment contract or at the end of my first year or at the end of the tax year? Is it different with every company or are there the same set rules for all companies? Can companies refuse to sacrifice a part of your salary?

I would appreciate all replies.

You need to ask your employer, all schemes are different, no one here will be able to tell you what your employer's scheme is

We only have it for pensions and the cycle to work scheme at my work. Can you really get out of paying tax just to buy luxury goods???? That seems.....questionable.

I dont know but I'm interested in the answer (not that its relevant to me) I always thought you could only sacrifice salary towards things like BUPA, cars, childcare vouchers not random luxury goods.

@FrazzledY9Parent

We only have it for pensions and the cycle to work scheme at my work. Can you really get out of paying tax just to buy luxury goods???? That seems.....questionable.

Beat me to it. We also have it for share purchase but for anything else, news to me.

That is not salary sacrifice as I know it, I assume you are asking for someone else and not yourself OP?

@Hellocatshome

I dont know but I'm interested in the answer (not that its relevant to me) I always thought you could only sacrifice salary towards things like BUPA, cars, childcare vouchers not random luxury goods.

This...

You can salary sacrifice for a pension and get 25% back tax free but you'd have to wait til you were at least 55 to draw it down.

It depends on the arrangements that your company has with the available schemes.

For example for mine I can salary sacrifice for pension and childcare if using the employer's nursery. We don't have salary sacrifice for the ultra-low emission vehicle scheme but companies can choose to join that. But companies can't just choose to let their employees buy random luxury goods and skip paying tax.

You have misunderstood the concept of salary sacrifice. There are schemes that are currently allowed by HMRC whereby the employer pays part of the salary into a pension scheme or some other benefits and therefore you save the tax and NI. You can’t just opt to take part of your salary tax free to spend on cars or luxury goods.

Umm I think you are slightly misunderstanding how salary sacrifice works. Usually it is in return for a non-cash benefitsay rent that isn't job related or for one of the car finance through work schemes but a) you still pay NI and tax on the amount b) your employer sets it up and don't just decide. For example your employer could have a deal with Ford which means you get a but of an overall saving compared to if you just walked in off the street into Ford.

This link may help you www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

This is a weird question because that is not really how it works.

If you sacrifice your salary then whether or not you get taxed on the sacrifice depends on what you ‘buy’ with it.

Eg - sacrifice to get pension contributions or extra holiday - not taxable

Sacrifice to get health insurance, travel insurance - taxable as a benefit in kind.

The car would be a benefit in kind too, but how much the value would be depends, I think, on the CO2 emissions.

Luxury goods - never come across this one, but likely to be a benefit in kind, so no tax saving.

Tax relief is only available on the items below (C&P from government website).

It's not a scheme to enable people to buy luxury goods tax free!

"The benefits listed below are not chargeable to income tax. This is much wider than simply being exempt under the benefits code. In these cases no charge under the earnings rules can arise:

Workplace car parking - Section 237 ITEPA 2003 - see EIM01030
Provision of cycles and cyclist’s safety equipment - Section 244 ITEPA 2003 - see EIM21664
Childcare vouchers - Section 270A ITEPA 2003 - see EIM16057
Workplace nurseries - Section 318 ITEPA 2003 - see EIM21905
Other Childcare - Section 318A ITEPA 2003 - see EIM21990
Employer made contributions under a registered pension scheme - see EIM42775 "

Is it different with every company or are there the same set rules for all companies? Can companies refuse to sacrifice a part of your salary?

Salary sacrifices is based on tax law and also the schemes companies opt into

Companies would refuse to salary sacrifice as you seem to suggest they might based on the fact I think you are trying to work out a system of tax evasion

It's all explained in detail here www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye#report-a-non-cash-benefit and in more detail in the HMRC Employment Manual here

Probably the closest to your 'luxury good' question is this example on a mobile phone here : "An employee sacrifices salary of £360 per year for a mobile phone. The benefit would otherwise be exempt from Income Tax under section 319 ITEPA 2003. The exemption does not apply because the benefit of the phone has been provided under optional remuneration arrangements. The cost of the benefit is deemed to be nil so the value of the benefit to treat as earnings from the employment is £360."

i.e. you could salary sacrifice it but would be treated as having earned the whole amount that you spent so there would be no reason for doing so.

Have you been offered an £80K job?

It's fabulous to see such a turnaround in your circumstances.

On this bit of your question When would my salary sacrifice portion be credited/ used towards my purchases? Upon signing the employment contract or at the end of my first year or at the end of the tax year?

In my experience (pension/childcare) what happens is that you agree to an arrangement of a certain amount being paid from your gross salary each month (or however you are paid). This is then shown on your payslip as a deduction from your salary. The amount agreed is then paid to the provider of the benefit directly by the employer. For tax purposes it relates to the tax year in which you were paid as in essence you are just getting a lower salary plus the benefit in question.

Thank you all for your lovely replies.

It seems like I have misunderstood the whole
Scheme and will have to further look into it.

From what I read online was you could use your salary sacrifice towards a car monthly payment, gym membership benefits non cash benefits, electronic items such as PC or phones.

I was just wondering what it was like if I wanted to outright “buy” the car instead of monthly instalments

Not that I’m trying to avoid paying tax and buy luxury I have read you could get it “paid” in a form of vouchers, so I thought maybe it was possible to get a voucher from places
like selfridges if given the choice.

It also seems like it varies from employer to employer

@PinkTonic

You have misunderstood the concept of salary sacrifice. There are schemes that are currently allowed by HMRC whereby the employer pays part of the salary into a pension scheme or some other benefits and therefore you save the tax and NI. You can’t just opt to take part of your salary tax free to spend on cars or luxury goods.

this

Some workplaces offer a perks scheme so you could pay for let’s say selfridges vouchers and you might get 5% discount - but you would still pay tax on the voucher! Basically - pay your tax! If you are earning 80k you can afford it! 👍🏻

Honestly, I find it hard to believe someone could get paid a salary of £80k and have such a poor grasp of tax/income.

^Not that I’m trying to avoid paying tax and buy luxury I have read you could get it “paid” in a form of vouchers, so I thought maybe it was possible to get a voucher from places
like selfridges if given the choice.

It also seems like it varies from employer to employer^

Where have you read you can get nearly half your salary paid in the form of Selfridges vouchers to avoid tax? I've never heard of any employer doing that.

@FrazzledY9Parent

We only have it for pensions and the cycle to work scheme at my work. Can you really get out of paying tax just to buy luxury goods???? That seems.....questionable.

No you can't.

@37TTCLeeds a little knowledge is a dangerous thing

OP is this a situation that you are actually in or are you just curious about how it works/trying to see how someone else can use it?

If you are trying to work out how to be tax efficient and make best use of a big uplift in earnings then it might be better to explain your situation and I'm sure people will be able to give you useful pointers.

@37TTCLeeds

Honestly, I find it hard to believe someone could get paid a salary of £80k and have such a poor grasp of tax/income.

Indeed.

I think you will find this is a hypothetical situation. The OP a has asked for help with housing and benefits several times.