Salary Sacrifice Calculator 2026/27
Salary sacrifice is a formal arrangement between you and your employer where you agree to give up part of your contractual gross salary in exchange for a non-cash benefit — most commonly extra pension contributions, but also things like a bike through a Cycle to Work scheme, an electric car lease, or additional annual leave. Because the sacrifice happens before tax and National Insurance are calculated, both are worked out on your new, lower salary rather than your original one.
This is different from simply paying for something out of your net (after-tax) pay. If you sacrificed £200 a month for a benefit worth £200, you'd effectively get that £200 benefit for less than £200 of actual cost, because you never paid Income Tax or employee NI on that portion of your salary in the first place. The exact saving depends on your tax band: a basic-rate taxpayer saves 20% Income Tax plus 8% employee NI (28% combined) on the sacrificed amount, while a higher-rate taxpayer saves 40% Income Tax plus 2% NI (42% combined) once they're earning above the higher-rate threshold.
Your employer benefits too — because your gross salary is lower, they pay less Class 1 employer National Insurance (currently 15%) on your reduced salary. Some employers pass some or all of this saving back to you as an extra pension contribution, which is worth asking about directly, as it isn't automatic and varies enormously between employers.
Pension salary sacrifice is the most common and usually the most valuable form of salary sacrifice, because pension contributions themselves are also tax-advantaged before you even factor in the NI saving. Contributions still count towards your annual pension allowance, which stands at £60,000 for 2026/27 (or 100% of your relevant UK earnings if lower), with the allowance tapering down for very high earners with adjusted income above £260,000.
An important upcoming change: at the Autumn 2025 Budget, the government confirmed that from April 2029, only the first £2,000 of salary sacrificed into a pension each year will remain exempt from National Insurance. Amounts sacrificed above £2,000 will become subject to NI at your marginal rate, reducing (though not eliminating) the NI saving on larger pension sacrifices from that point. For 2026/27, this change hasn't taken effect yet, so the full NI saving still applies regardless of how much you sacrifice — but it's worth being aware of when planning further ahead, particularly if you're weighing up increasing pension contributions substantially.
Because pension salary sacrifice reduces your taxable income, it can also help higher earners avoid or reduce the effects of the personal allowance taper (which withdraws £1 of your tax-free allowance for every £2 earned above £100,000) or pull income back under the £50,000 Child Benefit high-income charge threshold — both valuable secondary effects worth factoring in alongside the headline NI saving.
Cycle to Work schemes let you sacrifice salary to cover the cost of a bike and safety equipment, spread over an agreed period (commonly 12 months), then typically pay a small "fair market value" fee at the end to own the bike outright. Since the £1,000 cap was removed for FCA-authorised providers in 2019, employees can sacrifice for higher-value bikes, including e-bikes, with the same tax and NI savings applying throughout.
Other common salary sacrifice benefits include childcare vouchers (a scheme now closed to new joiners since October 2018, though existing members can remain in it), additional holiday purchase schemes, technology and electronics schemes, and ultra-low emission vehicle leases — the last of which is significant enough that we've built a dedicated EV Salary Sacrifice Calculator covering the specific Benefit in Kind tax treatment of an electric company car.
Whatever the benefit, the same underlying mechanics apply: your gross salary drops by the sacrifice amount, you pay less Income Tax and NI as a result, and the benefit itself may or may not carry its own separate tax charge (a Benefit in Kind) depending on what it is — pension contributions carry no BIK charge, while some other benefits do.
Consider two employees each sacrificing £200 a month (£2,400 a year) into their pension. The first earns £35,000 a year and pays Basic Rate tax throughout; the second earns £65,000 and pays some Higher Rate tax on the top slice of their income.
For the basic-rate taxpayer, sacrificing £2,400 saves 20% Income Tax (£480) plus 8% employee NI (£192), a combined saving of £672 — meaning the £2,400 pension contribution effectively costs them only around £1,728 in reduced take-home pay. Their employer also saves 15% employer NI on the sacrificed amount (£360), which some employers reinvest back into the employee's pension as an added incentive.
For the higher-rate taxpayer, the same £2,400 sacrifice saves 40% Income Tax (£960) plus, on the portion of salary above the Upper Earnings Limit, only 2% employee NI rather than 8%. Even so, the combined saving is typically larger in cash terms for a higher earner, because the 40% Income Tax relief dominates the calculation — illustrating why pension salary sacrifice becomes increasingly valuable the further into Higher Rate tax someone's income extends, right up to the point where the personal allowance taper and additional-rate band come into play.
These figures are illustrative only — your own numbers will vary based on exactly how much of your income sits in each tax band once the sacrifice is applied, which is exactly what the calculator above works out precisely for your own salary and sacrifice amount.