Salary Sacrifice Calculator
Updated August 2026 · Free · No sign-up
Calculate UK salary sacrifice savings — how exchanging salary for pension contributions cuts income tax AND National Insurance for both you and your employer, and what your take-home actually changes by.
Quick answer: Sacrificing salary into a pension saves your marginal income tax + employee NI (8% basic / 2% higher) on every pound. A £2,000 sacrifice costs a basic-rate taxpayer only ~£1,440 of take-home — £2,000 lands in the pension. Employers save 15% NI on top, often shared.
How Salary Sacrifice Works
You contractually give up salary; your employer pays that amount directly into your pension (or other qualifying benefit) as an employer contribution. Because the salary never exists, neither income tax nor National Insurance is due on it — from either side. That NI saving is what makes sacrifice strictly better than making the same pension contribution yourself.
Worked Examples
Example 1 — basic rate. £2,000 sacrifice: you lose £2,000 gross but save £400 tax + £160 NI → take-home falls only £1,440. Pension gains £2,000 (or £2,300 if the employer adds their NI saving). Effective uplift: 39-60% versus what the same take-home cut would buy in an ISA.
Example 2 — higher rate. £5,000 sacrifice at 40% + 2%: take-home falls £2,900; pension gains £5,000+. For £100k-£125k earners losing the personal allowance, the effective relief hits ~60% — the single best deal in UK personal finance.
Example 3 — employer NI share. Employer NI is 15%: a £2,000 sacrifice saves them £300. Enlightened schemes add it to your pension — always ask; it costs the employer nothing versus pre-sacrifice payroll.
What Can Be Sacrificed
| Benefit | Tax/NI treatment |
|---|---|
| Pension contributions | Full income tax + NI saving — the headline use |
| Cycle to Work | Tax + NI free within scheme rules |
| Ultra-low-emission car schemes (EVs) | Sacrifice vs low BiK rate — usually strongly positive for EVs |
| Additional annual leave | Effectively buying days at your net marginal rate |
| Childcare (legacy schemes) | Closed to new entrants — Tax-Free Childcare replaced it |
The Catches (Small but Real)
- Minimum wage floor: sacrifice cannot take contractual pay below the National Minimum Wage — caps the scheme for lower earners.
- Reference-salary effects: statutory payments (SMP, SSP), life cover multiples, and mortgage applications may key off the post-sacrifice salary — good employers use a "notional" pre-sacrifice salary for internal benefits; lenders vary.
- SMP trap specifically: sacrifice during the SMP reference weeks lowers average weekly earnings and can cut maternity pay — pause or plan around the 8-week window.
- Annual allowance: total pension contributions (yours + employer + sacrifice) above the annual allowance (£60,000, tapered for high earners) trigger tax charges.
- It's contractual: changing the amount usually means a formal variation — most schemes allow changes at renewal windows or life events.
Sacrifice vs Personal Contribution (Why Sacrifice Wins)
A personal pension contribution gets income-tax relief but not NI relief. At basic rate, sacrifice saves an extra 8p per £1; at higher rate, 2p — plus whatever employer NI share you negotiate. The only reasons NOT to sacrifice: minimum-wage floors, imminent mortgage applications keyed to headline salary, or SMP timing. Model the take-home effect alongside a raise or bonus with the pay raise calculator.
Frequently Asked Questions
How does salary sacrifice save money?
Sacrificed salary never exists for tax purposes — you save income tax AND National Insurance (8% basic / 2% higher), unlike personal contributions which save only tax.
How much does a £2,000 salary sacrifice cost me?
At basic rate: about £1,440 of take-home for £2,000 into your pension (more if your employer shares their 15% NI saving).
Does salary sacrifice affect maternity pay?
It can — SMP is computed on post-sacrifice earnings in the reference window. Pausing sacrifice around that 8-week period protects your SMP.
Is there a limit to salary sacrifice?
Pay cannot fall below National Minimum Wage, and total pension contributions above the £60,000 annual allowance (tapered for high earners) incur tax charges.
Should my employer add their NI saving to my pension?
Many do (fully or partly) since it costs them nothing versus pre-sacrifice payroll — 15% of the sacrificed amount is on the table; always ask.
Can I change or stop salary sacrifice?
It is a contractual variation — schemes typically allow changes at annual renewal or life events (birth, marriage, financial hardship).
✓ Formula verified • Last updated: August 20, 2026