Answers · UK 2025/26
How does salary sacrifice affect my take-home pay?
Salary sacrifice reduces your gross pay, lowering both income tax and National Insurance contributions and typically increasing your net take-home pay compared to making the same payment from after-tax income.
Full answer
Under a salary sacrifice arrangement, you agree to give up part of your gross salary in exchange for a non-cash benefit such as pension contributions, childcare vouchers, or an electric vehicle. Because your gross salary is reduced, you pay income tax and employee NI on a smaller amount. For example, sacrificing £1,000 into a pension saves a basic-rate taxpayer 20% income tax (£200) plus 8% NI (£80), a total saving of £280. Your employer also saves 13.8% employer NI on the sacrificed amount. However, salary sacrifice can reduce your pensionable pay, statutory payments such as SMP and SSP, and may affect mortgage affordability assessments. The minimum wage rules mean your post-sacrifice salary cannot fall below the National Living Wage of £12.71 per hour for workers aged 21 and over.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.