Bonus Sacrifice Arrangement: How to provide a cost-efficient reward to your employees

4 December 2020

With Christmas and the end of the financial year fast approaching, many employers will look to recognise their employees’ hard work and achievements by paying end of year bonuses.

How to provide the most cost-efficient reward to employees?

Usually, there is no silver bullet, however in this case there is a solution in relation to one-off bonuses: Bonus Sacrifice Arrangement.

Many companies use Salary Sacrifice to enhance the tax-efficiency of pension contributions and other benefits. However, not many employers implement Bonus Sacrifice Arrangement. Bonus Sacrifice Arrangement allows employees to sacrifice their bonus payment and divert funds into their pension pot instead. This provides the following advantages for Employees and Employers:

For Employees:

  • The bonus sacrificed receives the full income tax relief (subject to Annual Allowance legislation)
  • Employees make National Insurance Contributions Savings on the amount sacrificed
  • Any investment growth on the contribution is outside of income tax scope

For Employers

  • Employer National Insurance Savings on the amount sacrificed
  • Ability to provide an enhanced reward at no extra cost

Example of a Bonus Sacrifice Arrangement for a Basic Rate Taxpayer

You can see how a Bonus Sacrifice Arrangement applies to Higher Rate Taxpayer, and an Additional Rate Taxpayer using the button below.

Higher rate tax payer examples 

Should you have any questions on the points raised in our blog, or bonus sacrifice arrangements in general, please get in touch with our dedicated Employee Benefits team.

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