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A Simple Guide To Salary Sacrifice

What does salary sacrifice mean?

Salary sacrifice means that you give up (or sacrifice) part of your normal salary in exchange for receiving the same amount of pay in the form of KiddiVouchers. When you join a KiddiVouchers scheme, you will be asked how much of your salary you want to swap for KiddiVouchers. Each time you alter the amount of KiddiVouchers you want to receive, you will automatically enter into a new salary sacrifice agreement with your employer.

How does salary sacrifice save me money?

You don't have to pay any tax or national insurance on KiddiVouchers, so swapping part of your salary for KiddiVouchers can save you money.

Does swapping salary for KiddiVouchers have any other implications?

When you join a salary sacrifice scheme, your actual salary is reduced. Any benefit which is based your salary can also be affected. Sometimes salary sacrifice arrangements might reduce your entitlement to other benefits, but in some cases salary sacrifice can increase your other benefits. See below for information about how salary sacrifice might affect you.

Will salary sacrifice affect my maternity pay?

Statutory Maternity Pay (SMP) is based on your average earnings over a period before your maternity leave starts. KiddiVouchers are not taken into account in the calculation, so using KiddiVouchers during this period will reduce your entitlement to SMP.

If your employer pays more than the statutory minimum during maternity leave, then the effect of using KiddiVouchers depends on how your employer calculates maternity pay. Your employer should be able to advise you whether using KiddiVouchers will affect your benefits.

Can I receive KiddiVouchers while I am on maternity leave?

Being on maternity leave does not prevent you from using KiddiVouchers. However, if your pay is low while you are on maternity leave, you should check with your employer whether you are still earning enough to participate in a salary sacrifice arrangement.

Do KiddiVouchers affect paternity pay?

If you are expecting to have a period of paternity pay, you should consider whether using KiddiVouchers will reduce your entitlement. You can continue to receive KiddiVouchers while you are on paternity leave, but you should check with your employer that your earnings remain high enough to participate in a salary sacrifice arrangement.

Does salary sacrifice affect my tax credit?

Using childcare vouchers can affect tax credits, so we recommend that you use HMRC's online calculator to check whether childcare vouchers will save you money.

If your childcare costs exceed 175 per week (or 300 per week if you have more than one child in childcare), then you can always use childcare vouchers to pay for any care above these limits without affecting your tax credits.

If you are claiming tax credits to help with your childcare costs, you must inform the Inland Revenue when you start using childcare vouchers.

Will salary sacrifice affect my state pension?

As long as you pay the minimum requirement for National Insurance contributions, using KiddiVouchers should not affect your basis State Pension. Your local tax office should be able to give you more information.

Will salary sacrifice affect my company pension?

Your employer may have made arrangements for your company pension scheme rules to be altered so that your company pension isn't affected by KiddiVouchers. If they have not done this then your pension contributions may decrease and your eventual pension entitlement may be affected. Your employer should be able to give you further information.

Will salary sacrifice affect my insurance benefits?

If you have any insurance policies which are based on your salary, such as life insurance, sickness insurance or unemployment protection, then it is possible that using KiddiVouchers could reduce the amount you would receive from these policies.

If life insurance is provided through your company pension scheme, your employer may have made arrangements for the scheme rules to be altered so that your benefits aren't affected by KiddiVouchers. Your employer should be able to give you further information.

Will salary sacrifice affect my overtime, bonuses or pay rises?

Using KiddiVouchers temporarily reduces your salary, so any benefits which are based on your salary may be affected. However, employers normally make arrangements so that your salary amount used in calculating overtime, bonuses and pay rises includes any amount paid as KiddiVouchers. If your employer has done this, then using KiddiVouchers will not reduce your overtime, bonuses or pay rises.