Salary Sacrifice Calculator
Calculate your tax and NI savings from salary sacrifice — pension contributions, electric vehicle leasing, and cycle-to-work schemes. See the real cost of your benefits and how much you save compared to paying from net income.
Annual Tax + NI Saved
£560
Cost Per £1 Sacrificed
72p
Total Pension / Year
£2,000
Net Cost of Benefits
£880
| Without | With Sacrifice | You Save | |
|---|---|---|---|
| Gross Salary | £40,000 | £38,000 | — |
| Income Tax | £5,486 | £5,086 | £400 |
| Employee NI | £2,194 | £2,034 | £160 |
| Take-Home Pay | £32,320 | £30,880 | — |
| Take-Home Reduction | £1,440 | ||
| Tax + NI Savings | £560 | ||
| Net Cost of Benefits | £880 | ||
How Salary Sacrifice Works
Salary sacrifice (also called salary exchange) is an agreement between you and your employer to reduce your gross salary in exchange for a non-cash benefit. Because your contractual pay is lower, you pay less income tax and National Insurance on the sacrificed amount — making the benefit significantly cheaper than buying it with net income.
Pension
Pension salary sacrifice is the most common type. Instead of contributing to your pension from net pay (with tax relief claimed back), your employer redirects the amount before tax. You save both income tax and employee NI. Your employer also saves employer NI (15%) on the sacrificed amount — many employers pass some or all of this saving back to you as additional pension contributions.
Electric Vehicle
Your employer leases an electric vehicle and you sacrifice salary to cover the lease cost. Because pure EVs have a Benefit-in-Kind rate of just 4% (2026-27), the tax on the benefit is far less than the salary you sacrifice — creating a large net saving. This makes EV salary sacrifice one of the cheapest ways to drive a new electric car.
Cycle to Work
Your employer provides a bicycle and safety equipment through salary sacrifice. Cycles are exempt from the Optional Remuneration Arrangements (OpRA) rules, so you save the full income tax and NI on the sacrifice amount. There is no government-imposed value limit, though individual employers may set their own caps.
Key Rules
National Minimum Wage floor: Your sacrifice cannot reduce your hourly pay below the NMW (£12.71/hour from April 2026 for age 21+). This is a legal requirement your employer must check.
OpRA exemptions: Only certain benefits keep the full salary sacrifice tax advantage: employer pension contributions, cycles, and cars with CO₂ emissions of 75g/km or less. Other benefits (e.g., private medical insurance) are taxed under the Optional Remuneration Arrangements rules.
April 2029 reform: From 6 April 2029, pension salary sacrifice above £2,000/year will become subject to employee and employer NI. Until then, no NI cap applies to pension sacrifice.
Frequently asked questions
What is salary sacrifice?
Salary sacrifice is an arrangement where you agree to reduce your gross salary in exchange for a non-cash benefit from your employer, such as pension contributions, an electric vehicle lease, or a bicycle. Because your gross pay is lower, you pay less income tax and National Insurance, making the benefit cheaper than buying it yourself.
Does salary sacrifice affect my mortgage application?
It depends on the lender. Most lenders assess affordability based on your gross salary before sacrifice, but some may use your reduced contractual salary. If you're planning to apply for a mortgage, check with your lender first. You can usually opt out of salary sacrifice with notice.
Does salary sacrifice reduce my State Pension?
Only if your post-sacrifice salary falls below the Lower Earnings Limit (£129/week in 2026-27). As long as you earn above this threshold, your National Insurance record and State Pension entitlement are unaffected.
Can I sacrifice below minimum wage?
No. Your employer cannot reduce your pay below the National Minimum Wage (£12.71/hour from April 2026 for age 21+) through salary sacrifice. This is a legal requirement.
What happens if I leave my employer during an EV lease?
Typically, you would need to either return the vehicle, transfer the lease to a personal contract, or pay an early termination fee. The exact terms depend on your employer's scheme and the leasing provider.
Is cycle-to-work still tax-free?
Yes. Cycles and cyclist safety equipment are exempt from the Optional Remuneration Arrangements (OpRA) rules, meaning the full salary sacrifice tax and NI advantage applies. The previous £1,000 cap was effectively removed in 2019.
How does salary sacrifice interact with the £100K tax trap?
If you earn between £100,000 and £125,140, your Personal Allowance is gradually withdrawn, creating an effective 60% marginal tax rate. Pension salary sacrifice reduces your adjusted net income, potentially restoring some or all of your Personal Allowance.
What changes to salary sacrifice in April 2029?
From 6 April 2029, pension salary sacrifice contributions above £2,000 per year will become subject to both employee and employer Class 1 National Insurance. The NI advantage of pension salary sacrifice will be capped at £2,000/year. For 2026-27, no cap applies.
Does salary sacrifice reduce student loan repayments?
Yes. Student loan repayments are calculated on your gross pay. Salary sacrifice reduces your gross pay, which can reduce or eliminate your monthly student loan repayment.
Can I combine multiple salary sacrifice schemes?
Yes. You can have pension salary sacrifice, an EV lease, and a cycle-to-work scheme simultaneously, as long as your total sacrifice doesn't reduce your pay below the National Minimum Wage.
Sources
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