Salary sacrifice

Salary sacrifice is an arrangement where you agree to take less cash pay in return for a benefit. HMRC defines it as “an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit”.

The most common use is pension contributions. Because your salary is lower, you pay less Income Tax and less National Insurance. HMRC lists pension contributions, workplace nurseries, bicycles and cycling safety equipment among benefits with no tax or NI charge. Other common schemes cover ultra-low emission cars (75g/km CO2 or less) and older childcare voucher schemes.

A sacrifice must not take your cash pay below the National Minimum Wage, according to HMRC.

Example (2026/27): on a £50,000 salary with a 5% (£2,500) pension contribution:

• net pay arrangement: NI £2,994.40, take-home £37,519.60;
• salary sacrifice: NI £2,794.40, take-home £37,719.60.

The same £2,500 goes into the pension, and you keep £200 more because NI is charged on £47,500 instead of £50,000. Compare the methods in the UK take-home pay calculator, which has a pension method option.