How much do I save with salary sacrifice?

Your saving equals the sacrifice amount multiplied by your combined tax and NI rate. A basic rate taxpayer (20% tax + 8% NI) saves 28p per £1 sacrificed. A higher rate taxpayer (40% tax + 2% NI) saves 42p per £1. On a £3,000/year pension sacrifice, a basic rate taxpayer saves £840/year in tax and NI, meaning the real cost is only £2,160, yet the full £3,000 goes into the pension.

How does salary sacrifice reduce my tax and National Insurance?

Salary sacrifice works by reducing your contractual gross pay. Because income tax and employee National Insurance are both calculated on the lower gross figure, you pay less of both. A £250/month pension sacrifice reduces your taxable income by £3,000/year. At 20% tax and 8% NI, that is a combined 28% saving, £840/year, paid through PAYE automatically. The employer may also save on employer NI, which some pass on.

What is the 60% tax trap?

The 60% tax trap occurs when your income falls between £100,000 and £125,140. In this range, HMRC withdraws your personal allowance at £1 for every £2 of income above £100,000. This creates an effective marginal rate of 60%: 40% income tax plus the equivalent of a 20% surcharge from the lost allowance. Salary sacrifice is especially powerful here: £10,000 sacrificed in this band saves £6,000 in tax, bringing you back below the taper.

How does an EV salary sacrifice scheme work?

Under an EV salary sacrifice scheme, your employer leases an electric car and you sacrifice an equivalent amount of gross salary. You save income tax and employee National Insurance on the full lease value. The Benefit in Kind (BIK) tax on electric vehicles in 2026/27 is just 2%, making the taxable benefit minimal. A higher rate taxpayer leasing a £500/month EV saves approximately £210/month in tax and NI, making the effective net cost around £290.

Does salary sacrifice affect my state pension?

It can. The State Pension is based on qualifying years of National Insurance contributions, which depend on your earnings being above the Lower Earnings Limit (£6,396/year in 2026/27). If salary sacrifice reduces your earnings below this threshold, which is rare for most workers, you could lose a qualifying year. For most employees earning well above the LEL, salary sacrifice has no effect on State Pension entitlement. Verify at gov.uk/check-state-pension.

Updated 6 April 2026

Salary Sacrifice Calculator · Free UK 2026/27

See how much you save through salary sacrifice on pension contributions, EV car schemes and childcare. Updated with 2026/27 HMRC tax rates.

✓ Free to use✓ Pension & EV modes✓ Tax & NI savings✓ Updated 2026/27

Salary Sacrifice Calculator

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This is an estimate. Employer NI saving (15%) may or may not be passed on. State pension implications: verify with gov.uk if your earnings would fall near the lower earnings limit (£6,396). For the 60% trap, seek professional advice.

How Salary Sacrifice Works

Quick Answer: Salary sacrifice reduces your gross salary before tax and National Insurance are calculated. For a basic rate taxpayer, every £100 sacrificed saves 20% income tax + 8% employee NI = £28 net saving (you only give up £72 in take-home pay to get £100 of benefit). Higher rate taxpayers save £40 tax + £2 NI = £42.

The Mechanism

Under a salary sacrifice arrangement, you agree to reduce your contractual gross pay by a set amount. In return, your employer provides a benefit of equivalent value, most commonly a pension contribution, an electric car lease, or childcare vouchers. Because income tax and employee National Insurance are both assessed on the reduced gross salary, you pay less of both. The net cost to you is always less than the face value of the benefit received.

Formula

Net Cost of Sacrifice = Sacrifice Amount × (1 − Tax Rate − Employee NI Rate)

£1,000 sacrifice (basic rate): £1,000 × (1 − 20% − 8%) = £720 net cost, you receive £1,000 of benefit for £720

Worked Example: Pension, £3,000 sacrifice, basic rate taxpayer

Gross salary before sacrifice£35,000

Monthly sacrifice amount£250

Annual sacrifice£3,000

Income tax saved (20%)£600

Employee NI saved (8%)£240

Total annual saving£840

Net cost of £3,000 benefit£2,160

Employer NI saving (15%) is sometimes passed on to the employee, check your scheme rules.

How EV Salary Sacrifice Works

An electric vehicle (EV) salary sacrifice scheme works by your employer leasing a car and you sacrificing gross salary equal to the lease cost. You save income tax and employee National Insurance on the full lease value. The Benefit in Kind (BIK) charge on fully electric vehicles in 2026/27 is just 2%of the car’s P11D value, far lower than petrol or diesel equivalents (typically 20–37%). This combination means the effective net cost of leasing an EV through salary sacrifice is significantly lower than a personal lease.

The 60% Tax Trap

If your income falls between £100,000 and £125,140, your personal allowance is tapered away at £1 for every £2 of income above £100,000. This creates an effective marginal income tax rate of 60% (40% tax plus the loss of 20% worth of allowance). Salary sacrifice is especially valuable in this band: a £10,000 pension sacrifice that brings your income below £100,000 saves £6,000 in tax, a 60% effective saving. If you earn in this range, salary sacrifice should be a priority consideration.

Frequently Asked Questions

For most employees, salary sacrifice is worth doing, especially for pension contributions. Because the sacrifice comes off your gross salary before tax and National Insurance are calculated, every £100 contributed costs a basic rate taxpayer only £72 in take-home pay (saving 20% tax + 8% NI). For higher rate taxpayers, the same £100 costs just £58. The savings are even more significant for earners in the £100,000–£125,140 personal allowance taper zone.