Salary sacrifice is an arrangement between employers and employees, where employees agree to reduce in their cash remuneration in lieu of a pension payment being made to their scheme.

Why might an employee choose to salary sacrifice

Salary sacrifice can alter the employee's remuneration package to a more tax efficient structure, at no additional cost to either the employer or the employee. Salary sacrifice can generate higher pension contributions than if the employee opts to make the contributions themselves.

Employee's salary reduction

This will reduce your employee's gross (pre-tax) salary, because their gross wages are now smaller, they will pay less income tax and National Insurance (NI) on their earnings, which also saves you, the employer on National Insurance too.

How much can I contribute to my employee's pension scheme?

You can pay as much into your employee's pension scheme as you like, subject to HMRC's contribution limits and rules. Your contributions will be tax-free as long as they do not exceed the individual's Annual Allowance, therefore reducing your company’s taxable profits and saving you on the Corporation Tax liability on that contribution.

Carry forward of unused allowances

If you haven't used your full Annual Allowance from previous years, you might be able to carry it forward and use it in the current tax year.

Carry forward can work for you if you have contributed less than the Annual Allowance in the previous three tax years and were a member of a UK registered pension scheme during that time.

The value of an investment with St. James's Place will be directly linked to the performance of funds you select, and the value can therefore go down as well as up. You may get back less than you initially invested.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax reliefs depends on individual circumstances.