A: A salary sacrifice scheme is an arrangement between an employer and an employee whereby the employee agrees to give up - “sacrifice” - part of salary in exchange for other, usually non-cash benefits which have a tax treatment that is perceived to be favourable.
Salary sacrifice schemes are often linked with particular benefits provided by employers such as cycle to work schemes. However, the two issues are broadly unconnected. The employer could provide the benefit and fund it themselves. The salary sacrifice is simply a tax-efficient way of an employee reimbursing the employer for the costs of benefits that the employer is not prepared to fund themselves.
The Department for Transport have provided a booklet entitled “Cycle to Work Scheme Guidance for Employers”, which gives comprehensive guidance and worked examples:
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