Buying Annual Leave -tax implications

sheramber

Is it stated in your contract that you can  buy extra days leave?

Midgetgem8200

No I don't think it's in the contract. It's just part of the yearly offering of flexible.benefits that you can sign up to

sheramber

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim42760

A salary sacrifice happens when an employee gives up the right to part of the cash remuneration due under his or her contract of employment. Usually, the sacrifice is made in return for the employer’s agreement to provide the employee with some form of non-cash benefit. The sacrifice is achieved by varying the employee’s terms and conditions of employment relating to remuneration. For example, an employee’s current contract provides for cash remuneration 

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye#:~:text=A salary sacrifice arrangement is,to agree to this change.

A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit.

As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.

Salary sacrifice - Revenue Benefits

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.

Jeremy535897

There is a fundamental difference between sacrificing salary for some other benefit such as employer pension contributions (non-taxable) or a paid holiday in Barbados (taxable), and sacrificing salary for reduced hours (whether you call it taking extra days' holiday or working fewer hours in the year). If the latter were taxable, then anyone changing from full time to part time would continue to be taxed on their full time salary, even though they were only paid for part time work.

sheramber

Jeremy535897 said:

There is a fundamental difference between sacrificing salary for some other benefit such as employer pension contributions (non-taxable) or a paid holiday in Barbados (taxable), and sacrificing salary for reduced hours (whether you call it taking extra days' holiday or working fewer hours in the year). If the latter were taxable, then anyone changing from full time to part time would continue to be taxed on their full time salary, even though they were only paid for part time work.

But if they went part time they would have new contract with the part time hours so would only be taxed on their part time salary.

[Deleted User]

sheramber said:

Jeremy535897 said:

There is a fundamental difference between sacrificing salary for some other benefit such as employer pension contributions (non-taxable) or a paid holiday in Barbados (taxable), and sacrificing salary for reduced hours (whether you call it taking extra days' holiday or working fewer hours in the year). If the latter were taxable, then anyone changing from full time to part time would continue to be taxed on their full time salary, even though they were only paid for part time work.

But if they went part time they would have new contract with the part time hours so would only be taxed on their part time salary.

Surely the point is that no benefit is being received for the salary sacrificed. The sacrifice is being made for giving up something that the employee is entitled to under their employment contract.

sheramber

Is the buying & selling of holidays classed as salary sacrifice? We offer this to employees but mindful that if it is salary sacrifice it may bring their pay below NMW.

Posted 10 months ago by HMRC Admin 10 

Hi
This would not be recognised as a genuine salary sacrifice as the employees are simply working more or less and, therefore, increased or decreased pay would go through the payroll.
If you require further clarification, please call the Employer Helpline 03002003200.
Thankyou.
Regards.  

https://community.hmrc.gov.uk/customerforums/payepe/300aaae0-4ed1-ec11-bea1-00155d975a55?page=1