What is Salary Sacrifice?

Explanation

Salary sacrifice is an arrangement between you and your employer where you agree to reduce your contractual gross salary in exchange for a non-cash benefit — most commonly additional employer pension contributions, but also childcare vouchers, Cycle to Work schemes, or ultra-low emission company cars. Because the salary reduction happens before income tax and National Insurance are calculated, you save both taxes on the sacrificed amount. Your employer also saves on employer NI (15%). For example, if a higher rate taxpayer sacrifices £500/month into their pension, they save £200 in income tax and £40 in NI that they would otherwise have paid. The trade-off is that your reported salary is lower, which can affect mortgage applications, statutory pay calculations, and any benefits linked to salary. Your employer must ensure your remaining salary does not fall below National Minimum Wage.