Salary sacrifice reduces your contractual salary in exchange for a benefit — a pension contribution, an electric car, or a bike — paid by your employer before tax. Because your gross pay falls, you save income tax AND National Insurance, unlike other routes. The trade-offs: a lower salary can affect mortgage applications, statutory maternity pay, and the National Minimum Wage floor.
How salary sacrifice works
You agree to a lower contractual salary, and your employer uses the difference to provide a benefit directly. Because the money never counts as your pay, it isn’t subject to income tax or National Insurance. On a £45,000 salary, sacrificing 5% into a pension means your taxable pay becomes £42,750, and the full £2,250 lands in your pension.
What you can sacrifice
- Pension contributions — the most common and most valuable use; see our pension calculator.
- Electric cars — a company EV attracts just 3% benefit-in-kind tax for 2025/26, making EV salary sacrifice strikingly cheap; petrol and diesel cars are far less favourable.
- Cycle to work — a tax-free bike up to a scheme limit, repaid from gross salary.
- Additional holiday, workplace nursery and some other benefits, depending on the employer.
Why the National Insurance saving is unique
Every pension route gives income tax relief. Only salary sacrifice also avoids National Insurance, because the money never counts as your earnings. At 8% below £50,270, that’s an extra 8p saved per pound compared with a net-pay scheme — on top of the tax relief everyone gets. Some employers even pass on part of their own 15% employer NI saving. For higher earners in the £100k–£125,140 zone, sacrifice is also the standard way to reclaim the tapered personal allowance.
The trade-offs to weigh
Mortgages: lenders assess your reduced contractual salary, so a large sacrifice can lower how much you can borrow — worth pausing before a mortgage application.
Statutory pay: maternity and other statutory pay are based on your post-sacrifice earnings, so a big sacrifice can reduce them.
Minimum wage: a sacrifice cannot legally take your pay below the National Minimum Wage — £12.21 an hour for age 21+ in 2025/26. Our calculators warn when a sacrifice would breach it.
See your salary sacrifice saving
Compare take-home before and after, with the income tax and the NI saving shown separately — plus car and EV versions.
Open the calculator