Salary Sacrifice Calculator 2026/27

Gross salary: £40,000
Pension contribution (5%): £2,000
New taxable salary: £38,000

Income Tax savings (20% of £2,000): £400
National Insurance savings (8% of £2,000): £160
Total Tax + NI saved: £560

Net cost to employee: £2,000 - £560 = £1,440

Frequently Asked Questions & Detailed Tax Guide

What is a Salary Sacrifice scheme?

A Salary Sacrifice arrangement is a contractually binding agreement between an employee and employer where the employee agrees to accept a lower gross cash salary in exchange for non-cash benefits. Because the gross salary is lower, the employee pays less Income Tax and employee National Insurance. Additionally, the employer saves 13.8% employer National Insurance, which is often partially passed back to the employee’s benefit pot.

What are the most popular salary sacrifice benefits?

To qualify for tax savings, the benefits must be approved by HMRC:
– Pensions: Contributions are deducted pre-tax, saving up to 47% in tax and NI for high earners.
– Electric Cars: Leased through the company with low Benefit in Kind (BIK) tax of 2% in 2026/27.
– Cycle to Work: Tax-free bicycle purchases up to £1,000+.

Tax Expert Pro-Tips: Borrowing and Benefits Impact

David Vance, CTA FCA, recommends: “Salary sacrifice reduces your contracted gross salary. Since mortgage lenders calculate borrowing limits based on gross income, a large salary sacrifice can reduce your mortgage capacity. Always ensure your contract states a ‘reference salary’ that represents your pre-sacrifice gross.”

Legislative References

• Finance Act 2017 – Restructuring of Optional Remuneration Arrangements (OpRA rules).
• HMRC Employment Income Manual – Guidelines for valid contractual changes.