Salary Sacrifice Calculator

Salary sacrifice is an arrangement where you contractually reduce your gross salary in exchange for a non-cash benefit, most commonly increased pension contributions. Because your taxable salary is lower, you pay less income tax and National Insurance. The mechanics matter: the sacrificed amount is removed before income tax and National Insurance are calculated, which is what sets it apart from a relief-at-source pension contribution, where only the income tax comes back.

For a basic-rate taxpayer sacrificing £100: you save £20 income tax + £8 NI = £28, so the pension contribution effectively costs you only £72, against a £20 saving on the same contribution made through relief at source. Higher-rate taxpayers save even more, £40 tax + £8 NI = £48 saved per £100 sacrificed. Scaled up, someone on £45,000 who sacrifices £5,000 into their pension saves £1,000 in income tax and £400 in employee NI, a total of £1,400, so the £5,000 contribution costs them £3,600 net.

Your employer also saves 15% employer NI on the sacrificed amount, so on that £5,000 the employer keeps £750, with 0.5% Apprenticeship Levy on top where it applies. Some employers pass part of this saving back to you as additional pension contributions, an arrangement known as NI passback. On a £1,000 sacrifice the employer saves £150 in NI, and a passback scheme turns your £1,000 into £1,150-£1,155 in the pension. Ask HR or payroll whether your scheme does this and, if it does not, suggest one, since it costs the employer nothing beyond admin. The calculator shows savings for both employee and employer.

Pension remains the most popular scheme, typically at 5% of salary and available up to 100% in principle, but several others operate in 2026. The cycle-to-work scheme covers bikes costing £1,000-£3,000, repaid over 12-18 months. An electric vehicle through salary sacrifice carries a benefit-in-kind rate of 4% in 2026/27, rising to 9% by 2029/30, which makes it extremely tax-efficient. Workplace nursery schemes are uncapped where the employer provides the childcare directly, annual leave purchase lets you buy extra holiday, and technology schemes offer only a limited tax advantage since 2017. Childcare voucher schemes closed to new joiners in October 2018 and were replaced by Tax-Free Childcare.

There are floors to watch. Salary sacrifice cannot take your remaining pay below the National Minimum Wage, which is £12.71 an hour in 2026 for workers aged 21 and over. Sacrifice also reduces your qualifying earnings for State Pension accrual, Statutory Maternity Pay, mortgage affordability assessments and some benefits. For most employees near these thresholds, sacrificing into a pension is still a net positive because of the better long-term income, but anyone planning maternity leave should check the effect on SMP, and pausing the sacrifice before the SMP earnings reference period begins can protect the payment.