Salary Sacrifice
An arrangement where you give up part of your salary in exchange for a non-cash benefit such as employer pension contributions, a cycle-to-work scheme, or an electric car. Because salary sacrifice reduces your gross pay, you save both income tax and National Insurance on the sacrificed amount. Employers also save on their Class 1 NI contributions, which makes it attractive for businesses to offer as a benefit.
Related Terms
Pension Tax Relief
A government top-up on pension contributions that effectively returns income tax paid on the contributed amount, making pensions a highly tax-efficient saving vehicle.
Annual Allowance
The maximum amount you can contribute to registered pension schemes each tax year while still receiving tax relief, currently set at £60,000.
Relief at Source
A method of pension tax relief where you contribute from your net (after-tax) pay and the pension provider claims basic-rate tax relief of 20% directly from HMRC, topping up your pension automatically.
National Insurance
A system of compulsory contributions paid by employees, employers, and the self-employed that funds state benefits including the State Pension, Statutory Sick Pay, and Maternity Pay.
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