Salary Sacrifice Calculator
Salary sacrifice into your pension to skip Income Tax and National Insurance on the sacrificed amount. See exactly how the maths plays out for your salary.
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What is salary sacrifice?
Salary sacrifice is an arrangement where you give up part of your gross salary in exchange for a non-cash benefit, most commonly a pension contribution. Because the sacrificed amount never counts as your salary, you avoid both Income Tax and National Insurance on it.
For a higher-rate taxpayer (40% IT + 2% NI), every £100 sacrificed costs you only £58 of net pay but adds £100 to your pension — a 72% return before any investment growth. For a basic-rate (20% + 8%) taxpayer, £100 sacrificed costs about £72.
Common things to sacrifice
- Pension — the most common. Your employer often passes on their 15% employer NI saving too, boosting the effective return further.
- Electric vehicle (EV) lease — Benefit-in-Kind tax for fully electric cars is just 3% in 2025/26 (rising 1% per year), making EVs by sacrifice extremely tax-efficient.
- Cycle-to-work scheme — Up to £3,000+ on bikes and equipment with most employers, paid through pre-tax salary.
- Childcare vouchers — Closed to new joiners since 2018, but existing users can continue.
Things to watch out for
- Don't sacrifice below minimum wage — Salary sacrifice can't take you below NMW. Your employer's payroll system should block this automatically.
- Mortgage applications — Lenders may use your reduced salary, not the pre-sacrifice figure. Ask your employer for a letter clarifying the arrangement if needed.
- Maternity / sickness pay — These are usually based on gross salary after sacrifice, so you might want to suspend sacrifice in the months leading up to maternity leave.
- Annual allowance — Total pension contributions (including via sacrifice) must stay within the £60,000 annual allowance for tax relief, or £10,000 if your income tapers it down.
Worked example: £60,000 salary, 10% sacrifice
Without sacrifice: gross £60,000 → take-home around £45,357.
With 10% sacrifice (£6,000 to pension): gross becomes £54,000 → take-home around £41,877. You've "lost" £3,480 of take-home but gained £6,000 in your pension. The £2,520 difference is the Income Tax and NI saving — handed straight to your retirement instead of HMRC.
FAQs
Is salary sacrifice always better than relief at source?
Almost always for basic and higher-rate taxpayers, especially if your employer passes on their NI saving. The exception is very low earners near the personal allowance, where sacrifice doesn't add much value.
Can I change my sacrifice amount?
Most employers allow changes once or twice a year (e.g. at salary review and at the start of the tax year). Some allow ad-hoc changes. Check your scheme rules.
Does sacrifice affect my State Pension?
It can if you sacrifice below the lower earnings limit (£6,396/year), since you'd stop earning NI credits. Stay above this and you're fine.