Salary Sacrifice Comparison Tool
Some employers add their NI saving (15%) to your pension pot or reduce the sacrifice amount. Check your contract.
Total You Save
£1,400
/year in tax, NI & student loan
Effective Cost
£3,600
for £5,000 of benefits
Marginal Rate
28%
Tax (20%) + NI (8%)
Cash vs Sacrifice — Side by Side
| Take as Cash | With Sacrifice | Difference | |
|---|---|---|---|
| Gross Salary | £50,000 | £45,000 | −£5,000 |
| Income Tax | £7,486.00 | £6,486.00 | −£1,000.00 |
| Employee NI | £2,994.40 | £2,594.40 | −£400.00 |
| Net Take-Home | £39,520 | £35,920 | −£3,600 |
| Employer NI | £6,750.00 | £6,000.00 | −£750.00 |
What Each Benefit Really Costs You
Pension
£5,000/yearTax Saved
£1,000.00
NI Saved
£400.00
Real Cost
72% of value
Your employer also saves £750.00 in NI
Why Salary Sacrifice Saves You Money
Salary sacrifice reduces your gross salary before tax and NI are calculated. On a £50,000 salary, your combined marginal rate is 28% — meaning every £1 sacrificed only costs you 72p in lost take-home.
How Salary Sacrifice Works
Salary sacrifice (also called “salary exchange”) is an arrangement between you and your employer where you agree to give up part of your gross salary in exchange for a non-cash benefit. Because your contractual salary is lower, you pay less income tax and National Insurance.
This is different from paying for things out of your net salary — with sacrifice, the deduction happens before tax is calculated, so you never pay tax or NI on that money.
Savings by Tax Band
| Tax Band | Income Range | Tax Rate | NI Rate | Total Saving |
|---|---|---|---|---|
| Basic Rate | £12,571 – £50,270 | 20% | 8% | 28p per £1 |
| Higher Rate | £50,271 – £125,140 | 40% | 2% | 42p per £1 |
| 60% Trap Zone | £100,000 – £125,140 | 60%* | 2% | 62p per £1 |
| Additional Rate | £125,141+ | 45% | 2% | 47p per £1 |
*60% effective rate due to Personal Allowance taper: every £2 earned over £100k removes £1 of your £12,570 Personal Allowance.
Salary Sacrifice vs Relief at Source
For pension contributions, there are two main methods. Relief at Source means your contribution comes from net pay, and HMRC adds basic rate relief (20%) automatically. Higher-rate taxpayers must claim the extra 20% via Self Assessment.
Salary Sacrifice is generally better because:
Salary Sacrifice
- ✓ Full tax relief immediately (no claiming)
- ✓ Saves employee NI (8% or 2%)
- ✓ Saves employer NI (15%)
- ✓ Reduces student loan repayments
- ✓ May avoid 60% tax trap
Relief at Source
- ✓ Automatic basic rate relief
- ✗ Must claim higher rate relief via SA
- ✗ No NI saving at all
- ✗ No student loan saving
- ✗ Does not reduce adjusted net income
Electric Vehicle Salary Sacrifice
EV salary sacrifice is one of the most tax-efficient benefits available in 2025/26. The Benefit in Kind (BIK) rate for pure electric vehicles is just 2%, making the tax cost minimal.
Example: £6,000/year EV lease
Basic rate taxpayer: Save ~£1,680 in tax/NI → effective cost ~£4,320 (28% off)
Higher rate taxpayer: Save ~£2,520 in tax/NI → effective cost ~£3,480 (42% off)
Plus the BIK on a £40k EV at 2% = £800 taxable → just £160/year tax (basic) or £320 (higher)
Things to Watch Out For
Lower Gross Salary
Salary sacrifice reduces your contractual gross salary. This can affect mortgage applications, statutory sick pay, maternity pay (SMP), and other benefits based on earnings.
National Minimum Wage
Your employer cannot reduce your salary below NMW through sacrifice. For full-time workers (37.5 hrs/wk), the 2025/26 floor is approximately £23,800/year.
Lock-in Period
Salary sacrifice arrangements are usually contractual and may have lock-in periods. You can't always opt out early — check the terms before committing.
State Pension
If sacrifice takes you below the NI Lower Earnings Limit (£6,396/year), you may not build State Pension qualifying years. This is rare but worth checking.