Upper Tribunal Administrative Appeals Chamber

[2024] UKUT 251 (AAC)

Fecha: 21-Nov-2022

Discussion and analysis

Discussion and analysis

30.

The approach favoured by the Secretary of State does not sit easily with the concept of ‘salary sacrifice’ because it doesn’t accept that any amount of salary is in fact sacrificed. Rather, it characterises the arrangement as the employee authorising a deduction from his/her earnings and its application in making a payment towards his/her occupational pension.

31.

That approach is inconsistent with the explanation given by HMRC on the gov.uk website, which describes it as “an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit” and acknowledges that salary sacrifice “can affect an employee’s entitlement to earnings related benefits” and “may affect an employee’s entitlement to contribution-based benefits” (see https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye).

32.

The issue of the proper characterisation of ‘salary sacrifice’ arrangements was considered by the Child Support Commissioner in R (CS) 9/08. That case concerned the application of the Child Support (Maintenance Assessments and Special Cases) Regulations 1992, but notwithstanding the different circumstances, the principles are the same as in this case.

33.

In R(CS) 9/08 the child’s father had a total annual remuneration package of £60,000. His employer operated a ‘salary sacrifice’ scheme, which the father chose to participate in, opting to have £4,000 per month contributed to his pension scheme.

34.

Commissioner Mesher (as he then was) found that the appeal tribunal had been wrong to regard the father’s (very substantial) salary sacrifice arrangement as equivalent to his having agreed to the deduction of the £4,000 monthly contributions at source through his pay-packet. He decided that that approach was not legally available to the appeal tribunal. Commissioner Mesher analysed the arrangement as follows:

“It is of the essence of salary sacrifice pension arrangements that the contributions to the occupational pension scheme are made as employer’s contributions and that the employee has agreed in advance in a contractually valid way to give up the right to receive cash payment of the amount of salary sacrificed” (R(CS) 9/08 at paragraph [18])

35.

Commissioner Mesher’s decision in R(CS) 9/08 is not binding on me, but I agree with his analysis and I follow his approach.

36.

Applying it to the circumstances of this case, the amount of the ‘EE Pension Salary Sacrifice’ did not form part of the claimant’s earnings. It was an amount which the claimant had contractually agreed to forego in return for his employer’s agreement to make a contribution to his occupational pension.

37.

This approach doesn’t lead to the irrational result that the Secretary of States says it does because if the ‘EE Pension Salary Sacrifice’ amount does not form part of the claimant’s gross ‘earnings’ by application of regulation 95(2) of the ESA Regulations, then no deduction from earnings falls to be made under regulation 96(3)(b) of the ESA Regulations. Further, since the payments into the pension scheme are employer contributions and not employee contributions, there is no “sum paid by the claimant” by way of contribution towards his occupational pension scheme under regulation 96(3)(b). There are no circumstances in which the approach I have adopted can result in a 150% deduction