Salary sacrifice in the UK: the tax-saving option most employees miss

Instead of receiving £X in taxable salary, your employer reduces your salary by £X and provides a benefit of the same value. For pensions and some other benefits, the £X never appears in your taxable pay, so you pay no income tax or National Insurance on it. Your employer saves its 15% NI too, and some employers pass that saving back to you.

The most common use is pension contributions. Instead of paying into your pension from your pay, your employer pays the equivalent straight in. A basic-rate taxpayer putting £100 a month into a pension this way saves about £28 in tax and NI, so it costs about £72 rather than £80 with normal tax relief. From 6 April 2029, only the first £2,000 a year of salary-sacrificed pension contributions will be free of National Insurance, though income tax relief is unchanged.

Electric cars are one of the most popular salary sacrifice benefits. The benefit-in-kind rate for fully electric cars is 4% of the list price in 2026/27, rising by one percentage point a year (5% in 2027/28). That keeps the tax on an electric car through work low, especially for higher-rate taxpayers. Compare the total monthly cost, including insurance and maintenance if included, with buying or leasing privately, and check what happens if you leave your job early.

Through a Cycle to Work scheme you hire a bike and equipment through salary sacrifice, saving roughly 28% to 42% depending on your tax and NI rates. Many schemes allow higher-value e-bikes, though employers can set their own limits. The bike should be used mainly for qualifying journeys such as commuting, and at the end of the hire period you can usually buy it for a small fee or extend the hire.