Salary Sacrifice: Complete Guide to Tax-Free Benefits
How salary sacrifice works, available schemes, and how much you could save on tax and National Insurance.
💡 What is Salary Sacrifice?
Salary sacrifice is a tax-efficient way to receive benefits by giving up part of your salary in exchange for non-cash benefits. This reduces both your income tax and National Insurance contributions.
Key Benefits:
- • Save income tax (20%, 40%, or 45%)
- • Save National Insurance (12% or 2%)
- • Often save employer NI too (13.8%)
- • Access to benefits you might not otherwise afford
How Salary Sacrifice Works
Before Salary Sacrifice
Gross Salary: £50,000
Income Tax: £7,486
National Insurance: £4,492
Take-home: £38,022
After £5,000 Pension Sacrifice
Gross Salary: £45,000
Income Tax: £6,486
National Insurance: £3,892
Take-home: £34,622
Pension: £5,000
Total benefit: £39,622
Net gain: £1,600 more in your pocket + £5,000 in pension = £6,600 total benefit
Available Salary Sacrifice Schemes
1. Pension Contributions
The most common and valuable salary sacrifice scheme. Your employer reduces your salary and pays the difference into your pension.
Tax Savings:
- • Basic rate: 32% (20% tax + 12% NI)
- • Higher rate: 42% (40% tax + 2% NI)
- • Additional rate: 47% (45% tax + 2% NI)
Example:
£5,000 pension contribution costs only £2,900-£3,400 after tax savings, depending on your tax rate.
2. Cycle-to-Work Scheme
Save 32-42% on bikes and cycling equipment through salary sacrifice over 12-18 months.
What's Included:
- • Bikes and e-bikes
- • Helmets and safety gear
- • Lights and accessories
- • Maintenance packages
Example:
A £1,000 bike costs only £580-£680 after tax savings, spread over 12-18 months.
3. Electric Car Scheme
Access electric vehicles through salary sacrifice with very low Benefit-in-Kind tax rates.
Benefits:
- • 2% BiK rate until 2025
- • Insurance and maintenance included
- • No upfront costs
- • Environmental benefits
Example:
A £40,000 electric car might cost £300-£500/month including all running costs.
4. Childcare Vouchers
Save on childcare costs through salary sacrifice (though Tax-Free Childcare is often better).
Important Note:
Childcare vouchers are closed to new applicants. Tax-Free Childcare is usually the better option for new parents.
5. Technology & Equipment
Access laptops, phones, and other equipment through salary sacrifice schemes.
Available Items:
- • Laptops and computers
- • Mobile phones and tablets
- • Software and subscriptions
- • Office equipment
Benefits:
- • Regular upgrades
- • Insurance included
- • Tax and NI savings
- • No upfront costs
Important Considerations
⚠️ Potential Drawbacks
- • Reduced salary affects mortgage applications
- • May impact other benefits based on salary
- • Some schemes have minimum contract periods
- • Not all employers offer these schemes
💡 Tips for Maximizing Benefits
- • Start with pension contributions (highest savings)
- • Combine multiple schemes for maximum tax efficiency
- • Consider your long-term financial goals
- • Review schemes annually to ensure they still suit your needs
✅ How to Get Started
- 1. Check what schemes your employer offers
- 2. Calculate potential savings using our calculator
- 3. Speak to your HR department about joining
- 4. Consider the impact on your overall finances
- 5. Start with small amounts and increase gradually
Calculate Your Salary Sacrifice Savings
Use our free calculator to see exactly how much you could save
Start Calculating →