What is Salary Sacrifice? UK Definition 2026/27
Quick Answer
Give up salary in exchange for benefits, reducing tax and NI.
Definition of Salary Sacrifice
Salary sacrifice is an arrangement where you give up part of your salary in exchange for non-cash benefits, typically pension contributions, childcare vouchers, or cycle-to-work schemes. Both you and your employer save National Insurance, and you save income tax on the sacrificed amount.
Salary Sacrifice — Key Facts for 2026/27
| Employee NI saving | 8% (or 2%) |
| Employer NI saving | 15% |
| Income tax saving | 20-45% |
| Cannot go below NMW | After sacrifice |
How Salary Sacrifice Works — Example
- 1Salary: £50,000
- 2Sacrifice: £5,000 to pension
- 3New salary: £45,000
- 4Employee NI saving: £400
- 5Income tax saving: £1,000-£2,000
- 6Employer NI saving: £750 (often added to pension)
How Salary Sacrifice Affects Your Tax
Salary sacrifice is highly tax-efficient, especially for pensions. Employer NI savings are often passed to employees. However, it reduces your gross salary which can affect mortgage applications and some benefits.
Official HMRC Guidance on Salary Sacrifice
For official guidance, refer to HMRC's documentation. Tax rules can change, so always verify current rates and thresholds on gov.uk.
HMRC: Salary sacrificeFrequently Asked Questions about Salary Sacrifice
Related Tax Terms
Accuracy Note
This information is for guidance only and is based on 2026/27 tax year rates. Tax rules are complex and your circumstances may differ. For personal advice, consult a qualified accountant or tax adviser.