Category: Employee Benefits

What is a salary sacrifice?

A salary sacrifice scheme lets employees swap cash salary for non-cash benefits, saving tax and National Insurance. But earnings must not fall below the National Minimum Wage, and life events may impact eligibility. Learn how to navigate these rules.

If an employee wants to join or leave a salary sacrifice arrangement, the employer must update their contract to clearly reflect the changes in cash and non-cash entitlements. Additionally, significant life events—such as marriage, divorce, a partner's redundancy, or pregnancy—may require adjustments to the arrangement, providing employees the option to opt in or out.

Certain benefits are currently exempt from Income Tax or National Insurance contributions and do not need to be reported to HMRC. These include:

• Contributions to pension schemes
• Employer-provided pension advice
• Workplace nurseries
• Childcare vouchers and employer-provided childcare contracted before 4 October 2018
• Bicycles and cycling safety equipment (including cycle to work schemes)

In some cases, for example, when a salary is exchanged for an employer contribution to a pension scheme, the reduction in salary may also reduce the employer's National Insurance contributions liability.

Check or update company car tax details

If you use a company car for private travel, it's taxed as a Benefit in Kind (BIK). The tax rate depends on the car’s list price and CO2 emissions—low-emission vehicles get tax breaks. Use HMRC’s online tool to check and update your company car tax details.

If you are provided with a company car that has private use (including commuting), it is considered a "benefit in kind" (BIK) and is subject to taxation. This means that the employee or director using the car must pay tax on the value of the benefit they receive from the car’s private use.

The amount of tax payable is based on the car’s list price, including optional extras and VAT. It also takes into account the CO2 emissions of the car, as cars with lower emissions usually have a lower benefit-in-kind (BIK) tax rate. The more polluting the car, the higher the tax rate will be, and conversely electric and low-emission cars are taxed more favourably.

HMRC’s ‘Check or update your company car tax’ service can be used to:

• check your company car’s details
• tell HMRC about any changes to your car since 6 April
• update your fuel benefit, if your employer pays for fuel

In order to use this service, you will need to know:

• the car’s list price (including VAT and accessories)
• to check if your diesel car meets Euro 6d standard
• CO2 emissions information
• the zero emission mileage figure or ‘electric range’ – if your hybrid car has a CO2 emission figure of 1 to 50g/km

The service is not available if:

• you’re part of a car averaging or car sharing scheme
• your employer is managing benefits and expenses through the company payroll (known as ‘payrolling’)
• you want to make updates for a company commercial vehicle, such as a van

Tax-exempt employee loans

Beneficial loans, where employees benefit from cheap or interest-free loans from their employer, can trigger tax implications. However, certain exemptions, like loans under £10,000 or qualifying loans, eliminate the need for employers to report or pay tax on them.

An employee can receive a benefit when they are provided with a loan from their employer that is either cheap or interest-free. The benefit arises from the difference between the interest the employee pays, if any, and the market rate they would have to pay if they obtained a loan from another source. These types of loans are commonly referred to as beneficial loans.

However, there are several situations in which beneficial loans may be exempt, meaning employers don’t have to report anything to HMRC or pay tax and National Insurance. One of the most common exemptions applies to small loans where the total outstanding balance to the employee is less than £10,000 throughout the entire tax year.

Other exemptions include:

• Loans given in the normal course of a domestic or family relationship, where the loan is made by an individual (not a company they control, even if they are the sole owner and employee).
• Loans provided to an employee for a fixed, invariable period, with a fixed, invariable interest rate that is equal to or greater than HMRC’s official interest rate when the loan was taken out.
• Loans offered on the same terms and conditions to the general public, typically seen with commercial lenders.
• Loans that are ‘qualifying loans’ for tax relief, meaning all the interest is eligible for tax relief.
• Loans made through a director’s loan account, as long as the account is not overdrawn at any point during the tax year.

In these cases, no tax or reporting requirements would apply to the employer.

Payrolling employee benefits

Employers can voluntarily register to report and account for tax on certain benefits and expenses via the RTI system before the start of the tax year. This process, known as payrolling, eliminates the need to submit P11D forms for the selected benefits at the end of the tax year.

The deadline for submitting P11D, P11D(b), and P9D forms for the 2024-25 tax year is 6 July 2025. These forms can be submitted via commercial software or HMRC’s PAYE online service, as HMRC no longer accepts paper submissions. Employees must also receive a copy of the information by the same date.

Employees must also be provided with a copy of the information relating to them on these forms by the same date. P11D forms are used to provide information to HMRC on all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) unless the employer has registered to payroll benefits.

A P11D(b) is still required for Class 1A National Insurance payments regardless of whether the benefits are being reported via P11D or payrolled. The deadline for paying Class 1A NICs is 22 July 2025 (or 19 July if paying by cheque).

If no benefits are provided during the tax year, employers can either submit a 'nil' return or notify HMRC that no return is required. Penalties apply for late submissions or payments, of £100 per 50 employees for each month a P11D(b) is late.

Advising HMRC of employees’ company car details

Ensure compliance with HMRC rules when providing company cars. From P46(Car) submissions to benefit reporting, learn what steps to take for private use and specific exemptions.

Here are the steps you need to follow to inform HMRC if you make any cars available for private use by company directors or employees. Private use of a car includes employees’ journeys between home and work, unless they are traveling to a temporary work location.

You must submit a P46 (Car) form to HMRC if you:

• Provide company cars to employees
• Stop providing a company car
• Provide an additional car to someone

You can submit the form in the following ways:

• Complete it online and send a printed copy to the address listed on the form.
• Use HMRC’s PAYE Online service for employers.
• Use your payroll software.

Additionally, you must report the car benefit on your end-of-year forms and pay Class 1A National Insurance on its value. You must also notify HMRC if a company car is replaced.

You do not need to notify HMRC if you provide:

• 'Pool' cars, which are used by multiple employees for business purposes and usually kept on your premises.
• Cars adapted for employees with disabilities, if the only private use is for commuting.
• Emergency vehicles used exclusively by on-call employees in police, fire and rescue, ambulance, or paramedic services.

Using the car fuel rates

Advisory fuel rates for company cars help employers and employees manage fuel costs without triggering tax liabilities. Learn how to use these rates to avoid tax, especially car fuel benefit charges.

HMRC's fuel rates also known as advisory fuel rates are intended to reflect average fuel costs and are updated quarterly. These rates only apply to employees using a company car.

The rates can be used either by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel.

HMRC will accept that there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rates to repay the cost of fuel used for private travel. This is the easiest way to ensure that no fuel benefit charge (for private journeys in a company car) is payable. However, the fuel benefit charge will still be payable if it cannot be demonstrated to HMRC that the driver of the car has paid for all fuel used for private journeys, this includes commuting to and from work. To ensure that this does not occur employees will need to keep a log of private mileage.