Salary sacrifice is an arrangement where you agree to give up a portion of your pre-tax salary in exchange for a non-cash benefit from your employer. Because your gross salary is reduced, both you and your employer pay less Income Tax and National Insurance (NI) for the 2026/27 tax year.
Common Salary Sacrifice Benefits
- Pension Contributions: This is the most common and often the most beneficial use of salary sacrifice.
- Electric Vehicles (EVs): Lease an ultra-low emission vehicle with significant tax savings. Compare this on our Company Car Tax Calculator.
How the Savings Work
When you sacrifice salary, you save the Income Tax and NI you would have paid on that amount. Your employer also saves their 13.8% Employer NI contribution. Calculate your potential savings using our interactive Salary Sacrifice Calculator.
Frequently Asked Questions (FAQ)
Q: What is a salary sacrifice arrangement?
A: It is an agreement where you give up a portion of your gross salary in return for a non-cash benefit, which lowers your taxable earnings and saves both tax and NI.
Q: Does salary sacrifice reduce my pension?
A: No, if set up correctly, your employer will base your pension contributions on your “notional salary” (your pre-sacrifice wage), meaning your retirement contributions remain unaffected.
Q: Can I sacrifice salary for an electric car?
A: Yes, electric car salary sacrifice schemes allow you to lease an EV using your pre-tax salary, which offers substantial tax savings compared to personal leases.