HMRC is aware that some third-party providers advertise salary sacrifice schemes, such as grocery vouchers, claiming they can reduce employer National Insurance Contributions (NICs) with HMRC approval. HMRC does not endorse or approve businesses to market their schemes as tax-compliant.

While providers may promote schemes as tax-efficient, the ultimate responsibility for ensuring compliance with tax and NIC obligations lies with the employer. Employers must therefore independently verify that any scheme meets regulatory requirements.

The Optional Remuneration Arrangement (OpRA) rules, introduced in April 2017, largely removed the tax and NIC advantages of benefits provided through salary sacrifice. These rules were implemented to prevent employees from receiving lower income tax and NICs by exchanging part of their salary for benefits instead of cash.

Under Section 62 ITEPA, a benefit falls under OpRA if an employee gives up current or future taxable earnings for a benefit, or agrees to receive a benefit in place of earnings—commonly via vouchers or non-cash items. For tax purposes, the amount treated as earnings is the higher of the cost or value of the benefit and the salary sacrificed. Further guidance on OpRA, including exclusions from exemptions, is available.

National Insurance Contributions (NICs) Implications
Non-cash vouchers provided through salary sacrifice, when facilitated by the employer and involving changes to employment terms, are treated as earnings under NIC legislation and attract Class 1 NICs. Any arrangement not meeting the exemption criteria in Schedule 3 of the Social Security Contributions Regulations 2001 will be subject to Class 1 NICs for both the employer and employee.