Tax information is based on HMRC rules for the 2026/27 tax year. Tax rules can change — always verify current rates at GOV.UK. This is not tax advice. Consider consulting a qualified tax adviser for your personal situation.
Contents
Salary sacrifice schemes let you exchange part of your salary for benefits, saving tax and National Insurance. Here’s how much you could save.
Read more: See our Take Home Pay guide for a complete overview of this topic.
How Salary Sacrifice Works
The Basic Principle
Without Salary Sacrifice
With Salary Sacrifice
Earn £50,000
Agree to £45,000 salary
Pay tax and NI on £50,000
Pay tax and NI on £45,000
Buy benefit from net pay
Employer provides £5,000 benefit
Less efficient
More efficient
What You Save
Tax Band
Income Tax Saved
NI Saved
Total Saving
Basic rate (20%)
20%
8%
28%
Higher rate (40%)
40%
2%
42%
Additional rate (45%)
45%
2%
47%
Plus employer saves 15% NI — often passed to you as extra contribution.
Pension Salary Sacrifice
How It Works
Step
What Happens
1
You agree to reduce salary by pension amount
2
Employee NI saved (8% or 2%)
3
Employer NI saved (15%)
4
Employer often adds their NI saving to your pension
5
More goes into your pension
Pension Salary Sacrifice Calculator
Example: £5,000 pension contribution
Method
Basic Rate Taxpayer
Higher Rate Taxpayer
Normal Contribution
Your contribution
£5,000
£5,000
Tax relief added
£1,250 (auto)
£1,250 (auto) + £1,250 (claim)
In pension
£6,250
£6,250
Your net cost
£4,000
£3,000
Salary Sacrifice
Salary reduction
£5,000
£5,000
In pension
£5,000 + employer NI
£5,000 + employer NI
If employer adds 15% NI
£5,750
£5,750
Your net cost
£3,600
£2,900
Extra benefit
£440
£440
Full Savings Table
Salary
Contribution
Normal Cost to You
Salary Sacrifice Cost
Saving
£30,000 (basic)
£3,000
£2,400
£2,160
£240
£30,000 (basic)
£6,000
£4,800
£4,320
£480
£60,000 (higher)
£5,000
£3,000
£2,550
£450
£60,000 (higher)
£10,000
£6,000
£5,100
£900
£100,000 (higher)
£20,000
£12,000
£10,200
£1,800
Assumes employer adds their 15% NI saving.
Why Employers Offer It
Employer Benefit
Detail
Saves 15% NI
On sacrificed salary
Attracts talent
Better benefits package
No extra cost
If they keep NI saving
Can share saving
Adds to your pension
Cycle to Work Scheme
How It Works
Step
What Happens
1
Choose bike and safety equipment
2
Employer buys it
3
You “hire” it via salary sacrifice (12-18 months)
4
At end, buy bike for small fee (typically 3-7%)
Cycle to Work Savings
Bike Cost
Tax Rate
Monthly Sacrifice (12m)
Real Cost
Saving
£500
Basic (28%)
£42
£360
£140 (28%)
£500
Higher (42%)
£42
£290
£210 (42%)
£1,000
Basic (28%)
£83
£720
£280 (28%)
£1,000
Higher (42%)
£83
£580
£420 (42%)
£2,000
Basic (28%)
£167
£1,440
£560 (28%)
£2,000
Higher (42%)
£167
£1,160
£840 (42%)
£5,000
Higher (42%)
£417
£2,900
£2,100 (42%)
E-Bike Example
E-bike Value
£2,500
Your tax rate
Higher (40%)
Salary sacrifice (12 months)
£208/month
Total sacrifice
£2,500
Tax saved (40%)
£1,000
NI saved (2%)
£50
Effective cost
£1,450
Saving
£1,050 (42%)
End of Scheme
Option
What Happens
Buy the bike
Pay “fair market value” (3-7% typically)
Extend hire
Continue small payments
Return bike
Rarely done
Electric Car Salary Sacrifice
How It Works
Step
What Happens
1
Choose electric car from approved list
2
Employer leases it
3
You sacrifice salary for lease + insurance + maintenance
4
Pay Benefit in Kind tax (very low for EVs)
5
At end: return, buy, or new car
Why EVs Work So Well
Factor
Petrol/Diesel
Electric
BIK rate 2026/27
20-37%
4%
Tax you pay
High
Very low
Salary sacrifice benefit
Reduced by BIK
Barely reduced
EV Salary Sacrifice Calculator
Example: £35,000 electric car
Monthly Lease Cost
£450
Gross salary sacrifice
£450/month
Annual sacrifice
£5,400
BIK value (4% of £35,000)
£1,400
BIK tax (higher rate)
£560/year (£47/month)
Your real cost
£308/month
What you get for £308/month:
Brand new EV
Insurance
Maintenance
Road tax
Breakdown cover
Tyres (often)
Comparison: Salary Sacrifice vs Buy/PCP
Method
Monthly Cost
3-Year Total
Salary sacrifice (after tax)
£350 net
£12,600
PCP (from net salary)
£400 + extras
£18,000+
Bank loan
£600+
£21,600+
Cash purchase
£35,000 upfront
Depreciation ~£15,000
Salary sacrifice often 30-50% cheaper than alternatives.
Real-World EV Examples
Car
List Price
Gross Monthly
Net Cost (Higher Rate)
MG4
£27,000
£350
~£250
Tesla Model 3
£40,000
£550
~£380
BMW iX1
£52,000
£700
~£480
Kia EV6
£45,000
£600
~£410
Net cost after tax/NI savings, including BIK.
Other Salary Sacrifice Benefits
Common Schemes
Benefit
Typical Saving
Notes
Childcare vouchers
32-47%
Closed to new joiners
Gym membership
28-42%
Some employers offer
Technology scheme
28-42%
Phones, laptops
Car parking
28-42%
At workplace
Health screening
28-42%
Annual checks
Childcare Vouchers (Legacy)
If You Joined Before Oct 2018
Saving
Basic rate
Up to £933/year
Higher rate
Up to £624/year
Additional rate
Up to £590/year
No new joiners — replaced by Tax-Free Childcare.
Impact on Other Things
What Salary Sacrifice Affects
Impact Area
Effect
Severity
Mortgage applications
Lower gross salary
Medium
Statutory benefits
Based on lower salary
Low
State Pension
Still builds if above LEL
Usually none
Other borrowing
Lower income shown
Low-Medium
Pay rises
Usually percentage of new salary
None
Mortgage Lender Treatment
Lender Approach
How They Handle It
Add back
Add pension sacrifice back to income
Ignore
Use lower gross salary
Varies
Depends on scheme type
Tip: Check lender policy before large salary sacrifice near mortgage application.
Minimum Wage Protection
Rule
Detail
Can’t go below NMW
After sacrifice
Employer should check
Usually automatic
2026/27 NMW
£12.71/hour (21+)
When Salary Sacrifice Works Best
Ideal For
Situation
Why
Higher/additional rate taxpayer
Maximum tax saving
Employer adds NI saving
Extra pension boost
EV scheme available
Huge savings
Not applying for mortgage soon
No income impact
Less Ideal For
Situation
Why
Close to NMW
Limited headroom
Applying for mortgage
Reduces gross salary
Claiming benefits
May affect entitlement
Employer keeps NI saving
Still saves, but less
How to Set Up
Pension Salary Sacrifice
Step
Action
1
Check if employer offers it
2
Complete salary sacrifice form
3
Agreement amends your contract
4
Lower salary, higher pension shows on payslip
Cycle to Work / EV
Step
Action
1
Check which schemes employer offers
2
Choose bike/car from approved provider
3
Get quote
4
Employer approves
5
Salary sacrifice begins
Key Takeaways
Salary sacrifice saves tax AND NI — unlike normal pension relief
Higher earners save more — 42-47% vs 28%
EV schemes are exceptional value — 4% BIK makes them cheap