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HMRC clarifies the legal position on workplace giving via salary sacrifice

Employers are taking a legal risk if they use a salary-sacrifice arrangement to allow staff to donate money to charity.

According to Workplace Giving UK, some large employers were operating workplace giving for their employees via their salary-sacrifice schemes.

But Nick Jones, senior policy adviser at HMRC, wrote advising: "For a salary-sacrifice arrangement to be effective, the employee should have given up control of the money sacrificed.

"As is clear from this guidance, a salary-sacrifice arrangement is not effective if, in practice, the employee has merely asked the employer to apply part of his cash remuneration on his behalf."

Joseph expanded on this interpretation, saying HMRC had ‘clarified that Workplace Giving schemes were always intended to allow individual employees the freedom of choice to make donations to causes that were important to them.

"Unfortunately, salary-sacrifice schemes cannot allow such a choice as in effect the individual employee is ‘sacrificing' his or her salary and cannot therefore have any say over what charity or cause it ends up with. An employer can nominate a cause and invite employees to sacrifice salary via such schemes for that charity but the actual donation eventually made is a corporate donation from the company and not an individual donation from the employee."

Workplace Giving UK point out that there is nothing to stop employers running both salary-sacrifice schemes and Workplace Giving schemes. However, they are very different methods of giving to charity.

It is now clear that salary sacrifice cannot be used to donate to the charity of an individual's choice via the payroll.

Elena Joseph, charity liaison director at Workplace Giving UK, added: "We didn't want any of the companies and charities we work with to fall foul of any legislation, so we were very keen to get some clarification from HMRC".

For more detail on the rules for salary sacrifice tax arrangements,  HMRC click here