Salary sacrifice calculator

You agree a new, lower salary with your employer. In return they pay the difference into your pension, or provide a car or bike. Income tax, employee National Insurance and student loan are all worked out on the lower figure, so every pound sacrificed avoids your top rate of each.

For a basic rate taxpayer in England that is 20% tax plus 8% NI, so £100 of pension costs £72. For a higher rate taxpayer earning above £50,270 it is 40% tax plus 2% NI, so £100 costs £58. With a Plan 2 student loan, add another 9%. Your employer also saves 15% National Insurance on the amount you give up, and some employers pass that saving into your pension.

Salary sacrifice cannot take your pay below the National Living Wage, which is £12.71 an hour from April 2026 for workers aged 21 and over.

Relief at source schemes take your contribution after tax and your provider adds 20%. Higher rate taxpayers then claim the extra relief through Self Assessment, and many never do. Net pay schemes take the contribution before income tax and after National Insurance. Salary sacrifice is the only method that also saves NI, which is why it usually leaves you best off. The table above shows the same 5% contribution paid all three ways.

Pensions are the most common, followed by electric cars, where the benefit in kind is just 4% of the list price in 2026/27. Cycle to work schemes, technology schemes and buying extra holiday are also widely offered. Childcare vouchers closed to new joiners in October 2018, though existing members can keep using them.

Cars with CO2 emissions above 75g/km fall under the optional remuneration rules, so you are taxed on the higher of the benefit in kind and the salary you gave up. That removes most of the saving for petrol and diesel cars.

A lower contractual salary can affect mortgage applications, life cover based on a multiple of salary, and some statutory payments such as maternity pay, so ask how your employer handles these. Most schemes let you change your pension sacrifice once a year or after a life event such as a birth or marriage.

From 6 April 2029, pension salary sacrifice above £2,000 a year will attract employee and employer National Insurance. Income tax relief stays the same, so sacrifice will still beat paying in from net pay, though the NI saving on contributions above £2,000 will go.