Understanding the Budget proposals on salary sacrifice

With details to be worked through, why it’s business as usual for employers.

The chancellor’s announcement of a proposed £2,000 National Insurance restriction on salary sacrifice (or salary exchange as it’s sometimes known) in November’s Budget has raised numerous questions across the financial services industry and for our clients.  

For now, though, employers can carry on with business as usual. Salary exchange arrangements remain fully valid; there is no change until April 2029.

We will notify you immediately if any interim guidance emerges, but the current position is stable.

What we know about the proposed changes

The government has indicated its intention to introduce the £2,000 cap on National Insurance (NICs) savings available through salary exchange. This cap applies to both employer National Insurance contributions at 15% and employee National Insurance contributions at 8% for basic rate taxpayers and 2% for higher-rate taxpayers.

Crucially there is no fine detail yet on how this will be administered, and there will be a consultation which will help work through the mechanics of how this will work in practice.

Be assured that we will work with HMRC, the regulator, payroll providers and employers to help play our part in shaping a workable and practical solution. This has been the case with previous reforms, where the policy intent has come early and the operational detail has followed later after consultation.

What is clear though is that this is a cap on NIC savings resulting from salary exchange not a cap on how much can be paid via salary exchange. It’s a cap not a cancellation.

What should employers do now?  

1. Continue your current salary exchange process: there is no requirement to amend contribution structures, communication materials or payroll rules.
2. Avoid pre-emptive changes until we have a consultation response or later draft legislation.
3. Stay close to your payroll provider. They will ultimately need to build the calculations and administrative mechanism for salary exchange from April 2029.
4. Reassure your employees nothing is changing until April 2029. The benefits of salary exchange (and any bonus exchange) remain.

We know you want us to support you by interpreting change and providing clarity and we will continue to provide practical guidance and support with employee communications when it is appropriate.

Salary exchange remains a valuable and efficient mechanism to help your employees save for their retirement.