'Salary sacrifice' is a scheme that allows an employee to give up the right to receive part of the pay due under their contract of employment in return for the employer’s agreement to provide the employee with some form of non-cash benefit.
Under the terms of the Employer Supported Childcare Vouchers scheme, an individual will sacrifice part of their cash-pay (taxable salary) in return for childcare vouchers, which are exempt from tax and National Insurance contributions (NICs). This means that the employee saves tax and NI on the amount of the voucher, while the employer also makes NIC savings on the same amount.
Salary sacrifice schemes are offered to employees on a range of benefits such as computers, bicycles, mobile phones and childcare. HM Revenue and Customs oversees salary sacrifice schemes because they operate under tax law rather than employment law.
There were some changes in the way the scheme operates from 6 April 2017.