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Director salary sacrifice for further education

Director salary sacrifice for further education

Looking at a non-shareholding director who wishes to make a salary sacrifice for 2 years to pay for an MBA and I am trying to clarify the tax (PAYE/CT/VAT) position. While on the face of it, this seems acceptable - the employee accepts a reduced salary and the employer pays for the training. The training is allowable for CT.

However, when researching the topic on the HMRC website (, it states that 'A salary sacrifice is not effective if, in practice, the arrangement enables the employee to continue to be entitled to the higher level of cash remuneration. In other words he has merely asked the employer to apply part of that cash remuneration on his behalf.' Does an amendment to the contract of employment overcome this objection and would such an amendment be weakened if there is a time element ie. salary reverts after 2 years ?

Thank you in advance for your help.


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25th Jan 2013 14:26

Try a slightly different approach

It's not up to HMRC to say whether or not a salary sacrifice is effective.  That is a matter of employment law.

If the employee is able to revert to their old salary at will though, the benefit will be money's worth and so taxable as pay (on the amount foregone) rather than a benefit (on the cost to the employer).  And if it's taxable as pay (and isn't covered by an exemption), there will be employee's NIC on it.  That's the point that they're making.

Work-related training though (see EIM01220) is exempt, so whether it would be taxable as pay or taxable as a benefit, there's no tax or NIC.

HOWEVER, there is an exception from the work-related training if the purpose of the training is to reward the employee for performing the duties of the employment (see EIM01250).  If the employee takes a salary sacrifice in order to do do the training, then prima facie the purpose of the training is to so remunerate (reward) them.

On the other hand, if an employee approaches their employer asking them to pay for training relevant to their job, and the employer says "we'd love for you to do it, and we agree that it would be to our benefit, but we can only afford to do that if you were to accept a reduced salary for the period of the training", that's something slightly different from a salary sacrifice, but with the same effect.

Whether it's pay or benefit, it's then exempt.

You want to try and make the amount of the salary reduction and the cost of the traing differ so that the employer seems to be bearing part of the cost (perhaps an amount broadly equivalent to the employer's NIC saving), to stand it apart from a salary sacrifice arrangement.

Where the salary sacrifice is an amount that is varied based on the consumption or use of something in the pay period, HMRC are likely to argue that it's true nature is a deduction from pay, rather than an effective salary sacrifice (rendering even exempt benefits like workplace parking taxable). I don't think that this will apply in this situation though.

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27th Jan 2013 08:06

It's early on a sunday and I am typing this whilst wiping the hangover away..... But, is there not some restriction on the fact that it is an MBA which is not considered work related training? There was a thread on this a while back I will have to research.

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27th Jan 2013 09:09

@Ding Dong

I think the thread you're thinking about is one relating to a sole proprietor doing an MBA (or similar), which is likely to be disallowed.

There is actually one case on work-related training; Silva v Charnock.  The point at issue wasn't the nature of the training itself, but the fact that it was the reimbursement of expenditure incurred by the employee before the employment began.  HMRC lost the case and the work-related training exemption applied.  The training concerned was an MBA though.

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27th Jan 2013 16:34

Found it!

And the reason I remembered there being a thread on it, was because it was me who asked (well it was nearly two years ago and I had a fuzzy head this morning!!!!)

here is the thread, it too referes to the Silva Charnok case but also goes into other factors - It was good memory refresher - especially as the client in question is still considering doing it !! 

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28th Jan 2013 09:19

Ah, I see

I don't disagree with the comments made in that thread, that a one man band company could get a "that's not wholly and exclusively for the business" argument.

In this situation though, it's a non-shareholding director, essentially just an employee, so I don't think that the same issue could arise.

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24th Apr 2013 21:52

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31st Mar 2017 16:52

The Director has taken a very bold step. Very few people do that much for education. When you a person who understands the need of education will surely will sacrifice for it. People should also support programs like Fast Degrees Online which are better for many of the students all around the world.

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