Salary sacrifice calculator
2026/27

How salary sacrifice works in 2026/27

Under a salary sacrifice (sometimes called salary exchange) arrangement you agree with your employer to reduce your contractual pay. Your employer uses the amount you gave up to fund a benefit: an extra pension contribution paid straight into your scheme, an electric car leased in the company's name, or a cycle-to-work bike. Because the money never reaches your payslip as salary, it is never subject to income tax or employee Class 1 National Insurance.

The employer wins too. Employer NI is 15% on pay above £5,000 in 2026/27, so every £1,000 you sacrifice saves your employer £150. Many schemes pass some or all of that saving back into your pension, which is why the calculator lets you model 0%, 50% and 100% passback. Ask HR what your scheme does; it is the single biggest variable in whether sacrifice beats a normal contribution.

The trade-off is that your gross pay is genuinely lower. That can reduce statutory maternity or sick pay, life cover based on a multiple of salary, and the income a mortgage lender sees. Sacrifice also cannot take you below the National Minimum Wage, which the calculator flags for a 35-hour week.

Salary sacrifice vs paying into your pension from net pay

A normal relief-at-source pension contribution already gets income tax relief: you pay 80% and HMRC adds 20%, and higher-rate taxpayers claim the rest through Self Assessment or a tax code adjustment. What that route never gives you is the National Insurance. Sacrifice saves 8% employee NI on pay between £12,570 and £50,270, and 2% above that, on top of the same income tax relief.

rUK rates, 2026/27, no student loan. Add 100% employer passback and the same £3,600 buys £5,750 of pension instead of £5,000.

Electric car salary sacrifice: the benefit-in-kind catch

An electric car through salary sacrifice is a company car, so HMRC taxes it as a benefit in kind. The taxable value is the car's P11D list price multiplied by the appropriate percentage, which for a zero-emission car is 4% in 2026/27, rising to 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30. On a £40,000 car that is £1,600 of taxable benefit in 2026/27, costing a higher-rate taxpayer £640 a year.

Set against the income tax and NI saved on the lease payments, the benefit-in-kind charge is small: a 40% taxpayer sacrificing £500 a month for a £40,000 EV keeps around £1,880 a year more than leasing the same car personally. The benefit is not subject to employee NI, although your employer pays Class 1A NI on it. Petrol and diesel cars attract 26% to 37% rates, which is why sacrifice schemes are almost always electric.

Who should think twice before sacrificing

• Anyone near the minimum wage. A sacrifice cannot take hourly pay below £12.71 for those aged 21 and over from April 2026.
• People planning to buy a home. Lenders typically assess the post-sacrifice salary. A £5,000 sacrifice can cut a 4.5x mortgage offer by £22,500.
• Earners between £100,000 and £125,140. Sacrifice is unusually valuable here: each £1 sacrificed also restores 50p of personal allowance, giving an effective 60% rate of relief. Use the pension planner to find the contribution that pulls you back under the taper.
• Parents with income over £60,000. Sacrifice reduces adjusted net income, so it can cut or remove the High Income Child Benefit Charge.
• Pension contributions above £60,000. The annual allowance counts employer contributions, so a large sacrifice plus the passback can breach it and trigger a tax charge.

Setting up salary sacrifice with your employer

Sacrifice is a change to your employment contract, so it needs to be agreed in writing before the pay it affects is earned. HMRC will not accept a retrospective arrangement. Most employers run a standing scheme with an annual election window and allow changes on lifestyle events such as a new child, a move or a change in hours.

Your payslip should show the reduced gross salary, not a deduction from it. If it shows the full salary with a pension line taken off, you are probably in a net pay or relief-at-source scheme, not a sacrifice scheme, and you are not getting the NI saving. Check with payroll, then run both figures through our salary after tax calculator to see the difference on your monthly pay.

If you also have self-employed or rental income, the tax you save on salary does not change what you owe on the rest. The multiple income calculator combines all of it in one place.