How much can I save through salary sacrifice?

It depends on your tax rate and the sacrifice amount. A higher-rate taxpayer sacrificing £5,000 for pension saves 40% income tax (£2,000) plus 2% NI (£100) = £2,100/year. The benefit costs them just £2,900 net rather than £5,000.

Does salary sacrifice affect statutory maternity pay?

Yes. SMP is calculated on Average Weekly Earnings which are based on your post-sacrifice contractual salary. A large pension sacrifice could reduce your SMP. Consider pausing sacrifice before the relevant assessment period.

Is salary sacrifice always better than employee contributions?

For pension specifically, salary sacrifice is almost always more tax-efficient as it also saves NI, whereas employee contributions only get tax relief. The exception is if sacrifice affects your mortgage, SMP, or state benefits entitlement materially.

Employment Law

Salary Sacrifice Calculator 2025/26 — Pension, Childcare & Cycle to Work

Salary sacrifice reduces your gross salary before tax and NI are calculated, saving money for both you and your employer. This calculator shows your exact take-home pay saving for pension contributions, childcare, or cycle-to-work schemes.

💼 Salary Sacrifice Calculator — 2025/26

Salary sacrifice reduces taxable pay — saving Income Tax and National Insurance for employee and employer.

Annual gross salary (£)

Sacrifice type

Annual sacrifice amount (£)

Employer also saves NI — split saving?

How Salary Sacrifice Works

In a salary sacrifice arrangement, you agree with your employer to give up part of your cash salary in exchange for a non-cash benefit — such as pension contributions, childcare, a bicycle, or an electric vehicle. Because your contractual salary is reduced, you pay Income Tax and National Insurance on a lower figure. Your employer also pays less employer NI — and many employers pass some or all of this saving back to employees.

The Most Common Salary Sacrifice Schemes

Pension contributions — the most valuable and common. No limit on contributions through sacrifice (though annual allowance and £60,000 cap applies to total pension contributions)
Childcare — workplace nursery schemes and employer-contracted childcare can be provided tax-free through sacrifice
Cycle to Work — up to £1,000 (or £1,500 for cargo bikes) of cycling equipment can be provided through sacrifice per year
Electric vehicles — a company EV through sacrifice attracts only 3% benefit-in-kind tax (2025/26), making it one of the most valuable perks available

Does salary sacrifice affect my mortgage application?+

Yes — it can. Mortgage lenders typically use your contractual salary (after sacrifice) rather than your total package. This may reduce the amount you can borrow. Before entering a salary sacrifice arrangement for a large amount, check with your mortgage adviser how it affects your borrowing capacity.

Does salary sacrifice affect state benefits?+

Potentially yes. Lower earnings can affect entitlement to contributory benefits (new-style JSA, ESA, state pension — as NI contributions may be lower), Universal Credit (though this depends on your UC circumstances), and statutory payments like SMP, SPP, and SSP which are based on Average Weekly Earnings. Seek advice before large sacrifices if you are on low income or planning a family.

Can salary sacrifice reduce pay below minimum wage?+

No. Salary sacrifice cannot legally reduce your pay below the National Minimum Wage or National Living Wage for your age group. If sacrifice would take you below NMW, the employer must reduce the sacrifice to comply. This is especially relevant for lower-paid workers on large pension sacrifice arrangements.