Salary Sacrifice Guide 2026/27: Save Tax and NI
Salary sacrifice is a tax-efficient arrangement where you give up part of your salary in exchange for a non-cash benefit. Because the sacrifice reduces your gross salary, you pay less Income Tax and National Insurance.
How Salary Sacrifice Works
Without Salary Sacrifice:
- You receive your gross salary
- You pay Income Tax and NI
- You spend after-tax money on benefits
With Salary Sacrifice:
- Your gross salary is reduced by the sacrifice amount
- You pay less Income Tax and NI on the lower salary
- Your employer provides the benefit instead
Common Salary Sacrifice Benefits
1. Pension Contributions
The most common salary sacrifice arrangement. Instead of personal pension contributions from net pay, your employer pays directly into your pension.
Savings Example (£50,000 salary, £5,000 pension contribution):
| Method | Personal Contribution | Salary Sacrifice |
|---|---|---|
| Gross salary | £50,000 | £45,000 |
| Income Tax | £7,486 | £6,486 |
| Employee NI | £3,268 | £2,868 |
| Net salary | £39,246 | £35,646 |
| Pension (you pay) | £5,000 | £0 |
| Pension (employer pays) | £0 | £5,000 |
| Take-home + pension | £39,246 | £40,646 |
Annual saving: £1,400 (NI saving £400 + employer passes on their NI saving)
2. Electric Vehicle Salary Sacrifice
Salary sacrifice for electric cars is extremely tax-efficient due to low Benefit-in-Kind (BIK) rates:
2026/27 BIK rates:
- Electric (0g/km): 3%
- Hybrid (1-50g/km): 5-14%
- Petrol/Diesel: 20-37%
Example: Tesla Model 3 (P11D value £40,000)
- BIK rate: 3%
- Annual BIK value: £1,200
- Tax at 40%: £480/year
- Monthly sacrifice: ~£450
- Effective cost with tax savings: Very low
3. Cycle to Work Scheme
Employees can sacrifice salary for bikes and accessories up to £1,000 (or more with employer agreement):
- Save up to 32-42% compared to retail price
- Income Tax and NI savings
- Often 0% interest
- Spread cost over 12 months
4. Childcare Vouchers (Legacy)
Childcare voucher schemes closed to new entrants but existing members can continue:
- Up to £55/week tax-free
- Being replaced by Tax-Free Childcare
Employer Benefits
Employers also save from salary sacrifice:
- Reduced Employer NI on the sacrificed amount (13.8% saving)
- Often pass some savings back to employees
- Attractive employee benefit at no net cost
Important Rules
National Minimum Wage
Salary sacrifice must not reduce pay below National Minimum Wage. If it would, the arrangement is invalid.
Contractual Change
Salary sacrifice is a permanent change to your contract (within the arrangement period). You give up the right to the cash salary.
Opting Out
Most schemes allow opt-out for "life events" (marriage, divorce, partner redundancy). Otherwise, you're committed for the agreed period.
Frequently Asked Questions
Does salary sacrifice affect my mortgage application?
Yes. Lenders see your reduced gross salary. However, many now understand salary sacrifice and may make adjustments.
Does salary sacrifice affect my pension?
If your pension is based on pensionable salary, a salary sacrifice pension could reduce other pension benefits. Check your scheme rules.
Can I salary sacrifice my entire bonus?
Often yes, subject to employer agreement. Sacrificing bonuses into pension is very tax-efficient for higher earners.
Related Calculators
- Salary Sacrifice Calculator - Calculate your savings
- Pension Tax Relief Calculator - See pension tax benefits
- Take Home Pay Calculator - Full salary breakdown