Salary Sacrifice

(The weekly series - Pocket Money - where I explain financial basics in fewer than 200 words. Feel free to make suggestions!)

Salary sacrifice is an official arrangement where you agree to give up part of your gross (pre-tax) salary in exchange for a non-cash benefit. This could be: 

• Pension contributions (probably the most popular option). 

• A cycle to work scheme

• And electric car 

• Childcare vouchers (now largely replaced by Tax Free Childcare)

• Extra holiday days

Because the taxable salary is now reduced, you pay less income tax and less National Insurance (as does your employer, and sometimes they pass this on as well). From 2029, contributions over £2,000 will attract National Insurance. 

Not every employer offers salary sacrifice and they are able to limit the options available. 

However, because salary sacrifice reduces your official salary, certain things which are calculated on your salary can be affected - like mortgages, Statutory Maternity Pay or Statutory Sick Pay and some state benefits. So make sure you understand the consequences before you sign up.

Love Eleanor. xxx