What is salary sacrifice?

Salary sacrifice is an arrangement where you give up part of your gross salary in return for a non-cash benefit — most commonly pension contributions, childcare vouchers, a cycle-to-work bike, or an electric car. Because the sacrifice comes off before tax, you pay less Income Tax and employee National Insurance.

How much can salary sacrifice save?

At the basic rate you save 20% income tax + 8% NI = 28% on the sacrificed amount. Above £50,270 you save 40% + 2% = 42%, making it especially valuable for higher-rate taxpayers and those near the £100k trap.

What are the downsides of salary sacrifice?

Lowering gross pay can reduce mortgage borrowing power, maternity pay, and some state benefits. It also reduces your qualifying earnings for auto-enrolment. Weigh these against the tax saving before opting in.

2026/27 Tax Year

Salary Sacrifice: Cut Your Tax & NI

Give up part of your gross salary for a pension, childcare, a bike or an EV and you pay less Income Tax and National Insurance. It's one of the most efficient ways to boost take-home — here's when it pays off.

How Salary Sacrifice Works

The benefit replaces salary before tax is calculated, so the sacrificed slice is never taxed.

Band	Income Tax	Employee NI	Total saved
Basic (under £50,270)	20%	8%	28%
Higher (£50,270–£100k)	40%	2%	42%
Additional (over £100k)	45%+	2%	47%+

💡 Example

🔧Sacrificing £200/month into your pension at the basic rate saves £56/month in tax and NI — and builds your pension. At the higher rate the same £200 saves £84/month.

Common Salary Sacrifice Benefits

Pension: the most common and tax-efficient — builds retirement savings.
Childcare: up to £55/week (£243/month) of tax/NI-free childcare.
Cycle to Work: a bike and accessories, tax/NI-free up to a limit.
Electric car: a company EV on salary sacrifice can beat a personal lease after tax.

Watch Outs

Mortgage affordability: lenders use gross pay, so lower salary can reduce borrowing.
Maternity / statutory pay: based on gross earnings — may fall.
State benefits: some are means-tested on gross income.
Auto-enrolment: lowering qualifying earnings can affect employer contributions.

Compare with and without sacrifice in the take-home calculator.