UK Salary Sacrifice Calculator

Salary sacrifice works by reducing your official salary in exchange for a benefit (usually pension contributions, but also cycle to work, childcare, or electric vehicle leases). Because the sacrifice happens before tax and NI are calculated, you save both income tax and National Insurance on the sacrificed amount.

For a higher rate taxpayer sacrificing £500 per month into a pension: you save 40% income tax (£200) plus 2% NI (£10), so the sacrifice only reduces your take-home pay by £290 instead of the full £500. Your employer also saves 15% employer NI (£75), and good employers pass some or all of this saving on to you as an additional pension contribution.

Salary sacrifice is almost always more tax-efficient than making personal pension contributions. With a personal contribution, you get tax relief but not NI relief. With salary sacrifice, you save both. The difference is 8% for basic rate taxpayers and 2% for higher rate taxpayers.

The only downside is that salary sacrifice reduces your official salary, which could affect: mortgage applications (lenders look at gross salary), statutory maternity/paternity pay (based on earnings), death-in-service benefits (often a multiple of salary), and future pay rises (if calculated as a percentage of salary). Check with your employer about how they handle these.

If your salary is between £100,000 and £125,140, salary sacrifice into a pension can be extremely valuable. It brings your salary below the £100,000 threshold where you start losing your personal allowance. By sacrificing enough to bring your salary to £100,000, you effectively avoid the hidden 60% marginal tax rate and reclaim your full £12,570 allowance.