Salary Exchange
Salary Exchange is becoming more popular as it is a very effective way of Employers reducing their National Insurance contributions for both the Company and the employee.
Salary Exchange is becoming more popular as it is a very effective way of Employers reducing their National Insurance contributions for both the Company and the employee.
Salary exchange is an arrangement between an employer and their employee where the employee agrees to a reduction in their contractual salary in exchange for a benefit of an equivalent value provided by the employer, in the form of employer pension contributions.
As the salary is being exchanged rather than paid directly, the Employer pays less National Insurance contributions and the employee pays less tax and National Insurance contributions.
Please note:
- Payslips need to display the amount of salary exchanged.
- HM Revenue & Customs take an interest in how tax and national insurance contributions are affected and have published a full set of salary exchange guidelines on their website.
- An employee’s entitlement to statutory benefits may be affected by their reduced gross salaries and so the employer needs to make employees aware of how they may be affected.
- An employer may want to retain a notional salary for employees (this is the salary before exchange), so employee’s pre-exchange salaries may be taken into account by mortgage lenders and when entitlement to other salary related benefits are calculated.
Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change.
Tax treatment is based on individual circumstances and may be subject to change in the future.
