Salary Sacrifice Schemes Explained
What is Salary Sacrifice?
Salary sacrifice is an arrangement where you agree to reduce your salary in exchange for non-cash benefits from your employer. This happens before tax and National Insurance are calculated, which means you pay less of both.
Common Salary Sacrifice Schemes
Pension Contributions
The most common form of salary sacrifice. Your employer pays part of your salary directly into your pension, saving you both tax and National Insurance.
Cycle to Work
Get a bike and equipment tax-free, usually paid through monthly salary deductions over 12-18 months.
Electric Car Scheme
Lease an electric vehicle through your employer, with payments taken from your pre-tax salary.
Childcare Vouchers
While closed to new entrants, existing schemes allow you to pay for childcare from your pre-tax salary.
Tax and NI Savings Example
| Scenario | Without Sacrifice | With £100 Sacrifice |
|---|---|---|
| Monthly Salary | £3,000 | £2,900 |
| Income Tax (20%) | -£487 | -£467 |
| National Insurance (10%) | -£252 | -£242 |
| Take Home Pay | £2,261 | £2,191 |
| Benefit Value | £0 | £100 |
| Total Value | £2,261 | £2,291 (+£30) |
* Example assumes basic rate taxpayer. Actual savings depend on your tax rate and specific circumstances.
Things to Consider
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Impact on Other Benefits
Lower salary might affect mortgage applications, maternity pay, or other salary-based benefits.
-
National Minimum Wage
Your reduced salary cannot fall below the National Minimum Wage.
-
Employer Participation
Not all employers offer these schemes. Check with your HR department.
How to Get Started
- Talk to your HR department about available schemes
- Calculate potential savings using our calculator
- Review the impact on your other benefits
- Get the agreement in writing
- Keep records of all arrangements