If your employer offers salary sacrifice schemes and you're not using them, you're leaving money on the table. These arrangements let you pay for certain things from your pre-tax salary, saving Income Tax and National Insurance. For a higher earner using several schemes, or an electric car, the savings can run into thousands a year. It also helps to understand your tax code.
How Salary Sacrifice Works
With salary sacrifice, you agree to reduce your gross salary by a set amount, and your employer uses that money to provide a benefit instead. Because the benefit comes from your pre-tax salary, you save Income Tax (20%, 40% or 45%) and employee National Insurance (8% on earnings up to £50,270, 2% above). Your employer also saves employer NI (15%), which is why many are happy to offer these schemes, and some pass part of that saving into your pension. Since 2017, most benefits lose their tax advantage when provided through salary sacrifice; the main exceptions are pensions, Cycle to Work, ultra-low-emission cars and (for existing members) childcare vouchers.
Common Salary Sacrifice Schemes
- Pension contributions: the most common scheme. Compared with a personal contribution, which already gets tax relief, the extra saving is the National Insurance: 8p per £1 for basic rate taxpayers and 2p per £1 above £50,270, plus anything your employer adds from its own NI saving
- Cycle to Work scheme: get a bike and accessories through your employer and pay from pre-tax salary, typically saving 28% to 47% depending on your tax band (check any end-of-hire ownership fee)
- Electric car leasing: the Benefit in Kind rate for fully electric cars is just 4% in 2026/27, which can make this very good value
- Childcare vouchers: closed to new joiners since October 2018, but you can keep using them if you were already in a scheme (compare with Tax-Free Childcare)
- Technology schemes: some employers offer laptops or phones through salary deductions, but these usually no longer save tax, so compare the total cost with buying outright
- Car parking: workplace parking provided by your employer is tax-free
The Real Savings Numbers
A basic rate taxpayer who sacrifices £200 a month into their pension sees their take-home pay fall by only £144, because they save £40 in Income Tax and £16 in National Insurance. Compared with paying the same £200 as a personal contribution with tax relief, the extra saving is the £16 a month of NI, or £192 a year, plus any employer NI it passes on. From 6 April 2029, only the first £2,000 a year of salary-sacrificed pension contributions will be free of NI. For electric cars, the saving depends on the car, the lease and your tax band, so ask your employer's provider for a quote showing the net cost after tax and Benefit in Kind and compare it with leasing privately.
Things to Watch Out For
- Salary sacrifice reduces your official salary, which can affect mortgage applications
- It can reduce your entitlement to state benefits like Statutory Maternity Pay if your salary falls below the lower earnings limit
- Student loan repayments are based on actual pay, so salary sacrifice can reduce these too (a bonus for some)
- You typically can't opt out mid-year except for a 'lifestyle change' (marriage, baby, etc.)
- Check if your employer's scheme is genuine salary sacrifice or just a payroll deduction (which doesn't save NI)
Frequently Asked Questions
Does salary sacrifice affect my state pension?
Only if your reduced salary falls below the National Insurance lower earnings limit (£129 a week, or £6,708 a year, in 2026/27). For most full-time workers, this isn't an issue.
Can I do salary sacrifice if I'm self-employed?
No, salary sacrifice is only available through employers. Self-employed people can still get tax relief on pension contributions directly.
How do I find out what salary sacrifice schemes my employer offers?
Check your employee benefits portal, ask HR, or look at your employment contract. Many employees don't know what's available, so it is always worth asking.
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