11 December 2025
The Advisory Service, our top member benefit; as voted by our members, has been receiving an increase in queries around salary sacrifice arrangements for the purchase of goods and services.
Clearly, recent promotion of such schemes incorrectly claiming to be “approved by HMRC” is causing widespread confusion in the pay profession. The latest release of the HMRC Employer Bulletin: December 2025, clarifies that such schemes do not have HMRC approval and should not be advertised as tax compliant.
The Employer Bulletin also reminds readers of the Optional Remuneration Arrangements (OpRA) legislation. It was introduced in April 2017, mainly to remove tax and National Insurance Contribution (NIC) savings on benefits through salary sacrifice arrangements.
OpRA continues to shape how employers and employees must account for benefits provided via salary sacrifice. HMRC guidance confirms that these benefits must still be reported for Tax on the employee and Class 1A National Insurance contributions (NICs) for the employer.
Key Reporting Requirements:
- Employers must report the higher of:
- The value of the benefit, or
- The amount sacrificed
- Reporting is made on the P11D (or through payroll if registered).
- For most benefits, this is disclosed under Section M of the P11D.
While employees may still see a saving on Class 1 NICs, they remain liable for income tax on the benefit. Employers, meanwhile, must pay Class 1A NICs.
Amounts Sacrificed vs. “Made Good”
HMRC guidance (EIM21120) makes clear that the amount sacrificed is not classed as “made good”, since tax has not been deducted from it. To reduce the cash equivalent of the benefit, employees must contribute an additional amount from their net pay.
Wider Implications of Salary Sacrifice
Employers should remember that the usual salary sacrifice rules apply:
- A formal contract variation is required.
- Salary sacrifice can affect compliance with National Minimum Wage / National Living Wage.
- It may impact calculations for average weekly earnings used in statutory payments.
- It can influence bank loans and mortgage applications, depending on lender criteria.
Employers are urged to make these implications clear to staff. Guidance is available on Gov.UK:
Salary sacrifice for employers
Optional remuneration arrangements: general exclusion from exemptions