What can I pay for if I use my salary sacrifice scheme on top of my gym membership?

I recently paid for a gym membership via salary sacrifice through work.

My company pays the annual costs in advance and I then pay back approximately €40 from my gross salary every month. It saves me about £10 off the usual monthly membership fee and I’m locked in for a year.

However, I have never used my salary sacrifice for anything other than retirement.

Can I buy other things through salary sacrifice, such as a phone or a car? It seems like it could save me a lot of money if it were deducted from my gross pay, instead of net pay.

Angharad Carrick from This Is Money says: When you enter a workplace you will usually be presented with a list of benefits, which will likely include annual leave, pension contributions and season ticket loans.

You will also be offered a salary sacrifice scheme, whereby employees can give up part of their gross salary or bonus in exchange for a non-cash benefit.

Employees generally tend to exchange salaries over pension contributions, because this is more tax efficient.

Because the employee hands in part of his salary, both employer and employee pay fewer national insurance contributions and the employee also pays less income tax.

For example, an employee earning £40,000 a year without any benefits and sacrificing £5,000 would get £35,000 a year, but pay a further £5,000 into their workplace pension scheme.

However, not everyone can qualify for a salary offer. According to the rules, you cannot participate in the scheme if it causes your salary to fall below the National Minimum Wage.

The scheme can also be used for non-financial benefits, with bicycles and cars being among the most popular items.

With the Cycle to Work scheme, employees can buy a bicycle through their employer, spread the costs over twelve months and thus realize tax savings.

A similar scheme exists for car leasing, whereby the reimbursements also cover road tax, insurance and roadside assistance.

Other items such as mobile phones and computers can also be paid via salary exchange, but this depends on your employer.

However, there are also exemptions where you may have to pay tax on the items through a so-called ‘benefit in kind’.

These are benefits that employees receive that are not part of their salary and some of which may be taxable. It can be difficult to figure out which ones apply to your circumstances.

We asked some experts for advice on where you can use the salary sacrifice scheme for your work, and what you might have to pay tax on.

What can I sacrifice as salary?

Steve Cave, Employee Benefits Director at Evelyn Partners, says: It really depends on the company-wide benefits your employer offers, as this will generally limit what you can buy through a salary sacrifice scheme.

However, if you and your colleagues would like to see a salary sacrifice arrangement for a particular benefit, it may be worth contacting your HR or employee benefits department to express your interest and inquire whether this is possible.

Salary sacrifice is an agreement between an employer and an employee to change the terms of the employment contract to reduce the employee’s right to cash wages.

The reduction in entitlement to cash (gross salary) is made in exchange for non-monetary benefits, which may include one or more of the following:

• Additional employer pension contributions

• Cell phones, laptops and other technology

The more gross wages exchanged, the lower the taxable income and the higher the savings made from income tax and national insurance contributions (NICs).

Megan Rimmer, financial planner at Quilter Cheviot, says: It is also worth exploring the protection options available through salary sacrifice.

You may be able to get protection policies through a salary sacrifice, such as life insurance, critical illness, income protection, healthcare and dental cover, which can save you money compared to buying these products elsewhere, although it’s always worth shopping around. to ensure you get the best deal for your circumstances.

Wherever possible, you should seek professional financial advice to ensure you make the best possible choices for your finances, especially if you plan to use your salary sacrifice to reduce your tax burden and/or supplement your pension.

There are important fees and thresholds to consider, so it is best to seek professional support to ensure you make the right decisions.

What are the disadvantages of wage sacrifices?

Angharad Carrick says: While you may enjoy the tax benefits of salary sacrifice, it’s not for everyone.

It may affect your eligibility for government benefits and other benefits, such as life insurance, bonuses or commission payments.

Steve Cave adds: Salary sacrifice can impact everything related to an employee’s salary. Therefore, there needs to be a framework (scheme rules and governance) in place to ensure that potential problems are avoided, and some modern schemes are taking such steps.

For example:

• Restrictions for people with low incomes. Employers cannot use salary sacrifice if it would bring an employee’s earnings below the national minimum wage.

• Salary sacrifice may affect employees’ eligibility for income-related matters, such as loan applications; However, this can usually be resolved as most lenders require pay stubs.

• Normally statutory maternity pay is calculated based on average weekly earnings, so it may be reduced if your overall salary is reduced.

• Benefits such as collective life insurance in the event of death and collective income protection

If you think you may be affected by a reduction in salary in any of these areas, before entering into an SS arrangement, please contact your HR or human resources department and check how the arrangement is administered and whether such issues may arise.

Karen Barrett, Founder and CEO of Unbiased says: While sacrificing salary is helpful, there are a few things to keep in mind. For example, a lower salary may affect how much you can borrow with a mortgage or certain benefits.

It’s worth checking with your employer how sacrificing your salary will affect your earnings before signing up.

What is a benefit in kind?

Angharad Carricks says: Salary sacrifice is an agreement to reduce an employee’s right to cash wages, usually in exchange for a non-cash benefit.

However, employers also offer cash benefits without tax savings, despite them being deducted from your gross pay.

These are items or services purchased to personally benefit the employee and there is no identifiable business purpose.

For example, you do not have to pay tax and national insurance contributions on uniforms or protective clothing, but you must report the clothing if it is part of a wage sacrifice scheme.

The most common types of in-kind benefits likely to be taxed are private health insurance, accommodation, loans, non-business travel and entertainment expenses, and a vehicle purchased for the business.

It is your employer’s responsibility to report this to HMRC.