Home & Tech Employer: What is salary sacrifice and how is it applied?

Salary sacrifice occurs when an employee agrees to give up part of their salary for an agreed period of time in exchange for a non-cash benefit, such as the supply of home and technology equipment. As salary sacrifice is taken from gross salary (before tax) rather than net pay, the participant will not initially pay any tax or National Insurance on the salary sacrifice amount. 

However, the provision of the equipment is a taxable Benefit In Kind (BIK) that needs to be reported to HMRC. Employers can report the BIK in two ways: 

1. On a P11D benefits form at the end of the tax year. A P11D form is used by employers to report any employee expenses, Payments and Benefits to HMRC, e.g. technology equipment, company car and private health insurance. Therefore, HMRC will recover the tax due, in arrears, via a change in your employees' tax code the following tax year (April 6 th – April 5th), your employees may still benefit from an NIC saving; up to 8% for basic rate taxpayers and 2% for higher rate taxpayers.  

2. Payrolling of Taxable Benefits process. This is a voluntary arrangement whereby your business chooses to account for the tax on any benefits provided to employees through PAYE each payday. This means employees repay the BIK Income Tax reduction within the tax year that their Benefits Plan began. You don't need to submit P11D forms for participating employees, instead the value of their tech is simply added to their taxable income each pay period as a ‘notional pay item’.

From April 2026 all employers will be required to use Payrolling of Taxable Benefits process to report BIKs to HMRC.