Salary sacrifice technology schemes: the tax

Q: How do the numbers work out?

Illustration only. A basic rate employee earning above the primary threshold sacrifices £50 a month (£600 a year) for a laptop with a market value of £1,500 when first provided. The section 205 annual value is £300, so the taxable amount is the £600 sacrificed. Without the scheme, £600 of salary would have cost the employee £120 in income tax and £48 in employee National Insurance at the 2026 to 2027 rates of 20% and 8%. With the scheme, the employee still pays £120 of income tax, now on the benefit. Because benefits under the general rules carry Class 1A National Insurance, which only the employer pays, the employee saves the £48. The employer saves £90 of secondary Class 1 on the salary but pays £90 of Class 1A at 15% on the benefit, so its position does not change. The employee's real saving is therefore small, and it can be eroded by the transfer charge or by a price that is higher than buying the item directly.

When an employer provides a phone, laptop, tablet or other home technology in return for the employee giving up salary, the arrangement is an optional remuneration arrangement. The taxable amount is the higher of the salary given up and the normal benefit value, and exemptions that would otherwise apply, including the mobile phone exemption, are switched off. In practice the employee pays income tax on roughly what they sacrifice and the employer pays Class 1A National Insurance on it, so most of the apparent tax saving disappears.

Tax investigation insurance from £108.75 a year (£9.06 a month).Pays up to £100,000 of your accountant's fees if HMRC opens an enquiry. No excess. Buy online in a few minutes.

See my price in 2 questions How the cover works Accountant? Offer cover to your clients or call 01795 841 310

How do technology salary sacrifice schemes work?

A typical scheme runs through a specialist provider. The employer buys or leases the item, lends it to the employee for a fixed term, often two or three years, and the employee agrees to a lower contractual salary for that term. At the end the item may be returned, replaced or handed over to the employee.

HMRC’s Employment Income Manual at EIM42750 explains that from 6 April 2017 the income tax and National Insurance advantages of providing benefits through salary sacrifice, described in the legislation as optional remuneration arrangements, were largely withdrawn. Section 69A of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) covers two types:

Type A: the employee gives up the right to earnings in return for the benefit, which is a classic salary sacrifice.
Type B: the employee agrees to take the benefit rather than an amount of earnings, for example choosing a laptop instead of a cash allowance in a flexible benefits menu.

Our page on salary sacrifice and the optional remuneration rules covers the rules generally. This page applies them to technology.

How is the taxable amount worked out?

Most technology is taxed under the general benefits rules in Chapter 10 of Part 3 ITEPA 2003. Where it is provided under optional remuneration arrangements, EIM44120 explains that the amount treated as earnings is the greater of the cost of the benefit and the amount foregone, which is the salary or cash given up (EIM44020).

For an item lent to the employee rather than given to them, section 205 sets the cost of the benefit each year at the annual value of the use of the asset, which for equipment such as a laptop or phone is 20% of its market value when first provided as a benefit, plus any additional expense. In most schemes the salary sacrificed is higher than that 20% figure, so the sacrifice becomes the taxable amount.

Where several items are bundled together, EIM44020 says the amount foregone should be apportioned on a just and reasonable basis if the agreement does not identify the sacrifice for each item.

Worried about an HMRC check? Tax investigation insurance pays your accountant’s fees if HMRC opens an enquiry or compliance check. Solar Protect cover pays up to £100,000 with no excess. It never pays tax, interest or penalties.

From £108.75 a year (£9.06 a month) for individuals, £117.57 for sole traders and £207.50 for companies and partnerships, including IPT and the £20 admin fee.

See my price in 2 questions or call 01795 841 310.

★★★★★ Rated 4.9 out of 5 on Trustpilot from over 160 reviews

What happens to the mobile phone exemption?

Outside salary sacrifice, one mobile phone provided by the employer is exempt under section 319 ITEPA 2003. HMRC’s guidance on mobile phones says nothing needs to be reported if the employer provides only one phone or SIM card and the contract is between the employer and the supplier, but that phone costs must be reported if they are part of a salary sacrifice arrangement. See our page on the mobile phone exemption.

EIM44130 explains why. Benefits provided through optional remuneration arrangements lose the exemptions in Part 4 ITEPA 2003 unless the exemption is an excluded exemption, and where a benefit would otherwise be exempt its value is treated as nil. HMRC’s example is an employee who sacrifices £360 a year for a mobile phone: the section 319 exemption does not apply and the taxable amount is £360.

The list of excluded exemptions at EIM44131 includes cycles and cycling safety equipment, pension contributions and pensions advice, childcare and some leaving support. Mobile phones and computers are not on it.

Does a laptop used for working from home escape the charge?

Not if it comes through salary sacrifice. Section 316 ITEPA 2003 exempts supplies and services used by the employee in performing their duties where any private use is not significant, which can cover a laptop provided for home working. Section 316 is in Part 4 and is not an excluded exemption, so under EIM44130 it is lost when the laptop is provided in return for salary. A work laptop provided outright by the employer is a different matter, covered in our page on equipment provided for home working.

What happens when the device is handed over at the end?

Many schemes transfer ownership to the employee at the end of the term. Section 206 then values the transfer of a used asset. Under section 206(3), where the asset was previously made available as a benefit, the cost is the higher of its market value at the time of transfer and its market value when first provided less the amounts already taxed under section 205. EIM44121 says that figure is then compared with any salary given up for the transfer, and the higher amount is taxed.

HMRC’s own example at EIM44121: an employee uses a computer for three years, sacrificing £300 a year. Its market value when first provided was £1,200, so the annual value is £240 and the employee is taxed on £300 in each year. In year four the computer is transferred, now worth £300, for a further £300 sacrifice. The section 206(3) figure is £1,200 less three years at £240, which is £480. That is higher than the £300 sacrificed, so £480 is taxed in year four.

This end of term charge often surprises employees who assumed the final sacrifice settled everything.

How do the numbers work out?

Illustration only. A basic rate employee earning above the primary threshold sacrifices £50 a month (£600 a year) for a laptop with a market value of £1,500 when first provided. The section 205 annual value is £300, so the taxable amount is the £600 sacrificed.

Without the scheme, £600 of salary would have cost the employee £120 in income tax and £48 in employee National Insurance at the 2026 to 2027 rates of 20% and 8%.
With the scheme, the employee still pays £120 of income tax, now on the benefit. Because benefits under the general rules carry Class 1A National Insurance, which only the employer pays, the employee saves the £48.
The employer saves £90 of secondary Class 1 on the salary but pays £90 of Class 1A at 15% on the benefit, so its position does not change.

The employee’s real saving is therefore small, and it can be eroded by the transfer charge or by a price that is higher than buying the item directly.

How is it reported and what National Insurance is due?

The taxable amount goes on form P11D or, if the employer payrolls benefits, through payroll; see our page on payrolling benefits in kind. EIM44121 confirms the amount is liable to Class 1A National Insurance, which is 15% for 2026 to 2027. Our page on Class 1A National Insurance covers the deadlines.

If the scheme provides vouchers that the employee exchanges for technology, the voucher rules apply instead. HMRC’s guidance says non cash vouchers are reported on the P11D but the employer adds their cost to earnings for Class 1 National Insurance through payroll, so the employee’s National Insurance saving is lost.

How does this compare with cycle and electric car schemes?

Cycle to work schemes keep their exemption because section 244 is an excluded exemption. Cars have their own optional remuneration rules, and EIM44060 deals separately with cars with emissions of 75g/km or less, which is why electric car salary sacrifice works differently from a technology scheme.

What mistakes come up most often?

Treating a sacrifice phone as exempt under section 319. HMRC’s guidance requires it to be reported.
Reporting only the 20% annual value when the salary given up is higher.
Ignoring the section 206 charge when the item is handed over.
Letting a sacrifice reduce pay below the National Minimum Wage, which HMRC’s salary sacrifice guidance says must not happen.
Telling staff the scheme saves income tax, when the main saving is employee National Insurance.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.