Salary Sacrifice Review 2026/27: Why Q2 Is the Perfect Time to Optimise

Why review salary sacrifice now?

The 2026/27 tax year started on 6 April. Q2 — roughly May to July — is when most annual reviews happen and when payroll teams have capacity to implement changes without the year-end crunch. More importantly, several things changed that affect how much salary sacrifice is worth:

1. Employer NI increased from 13.8% to 15% — the employer saving on each pound of salary sacrifice is now larger.
2. NLW rose to £12.71/hour — the NMW floor for sacrifice calculations has moved up.
3. New tax bands confirmed — particularly relevant for Scottish higher-rate taxpayers.

This guide covers the three main salary sacrifice schemes: pension, electric vehicles, and childcare.

How salary sacrifice works (quick recap)

Under a salary sacrifice arrangement, you agree to reduce your contractual salary by a set amount. Your employer gives up the equivalent in a non-cash benefit (pension contribution, car lease, childcare support). The sacrifice comes out before income tax and NI are calculated, so both you and your employer pay less.

Key tax mechanics:

• Sacrifice reduces taxable income → you pay less income tax (20%, 40%, or 45% depending on band)
• Sacrifice reduces NI-able earnings → you pay less employee NI (8% or 2%)
• Sacrifice also reduces employer NI-able earnings → your employer pays 15% less on the sacrificed amount

This last point is now significantly more valuable than it was before the April 2026 employer NI rise.

Salary sacrifice pension: combined savings by band

The table below shows combined income tax + employee NI savings on a £5,000 sacrifice, for different salary levels. We also show the employer NI saving:

Notes:

• Employer NI saving is always 15% × £5,000 = £750, regardless of employee's tax band.
• At £100,000+, every £2 of sacrifice restores £1 of personal allowance, creating an effective 60% relief rate — one of the most valuable salary sacrifice opportunities available.
• Above £50,270 employee NI drops to 2%, so the NI saving is smaller for higher earners.

What if your employer shares the NI saving?

Some employers (particularly those who updated their salary sacrifice policies after the April 2026 rate rise) pass some or all of the employer NI saving into the employee's pension. If your employer adds its £750 saving to your pension:

• Your £5,000 sacrifice effectively becomes a £5,750 pension contribution at no extra cost to either party.
• The government contributes via tax relief on top.

This is worth asking HR about — especially if your employer hasn't reviewed the policy since the rate changed.

Pension annual allowance check

The pension annual allowance for 2026/27 is £60,000 (or 100% of earnings, whichever is lower). This covers total contributions from employer + employee.

For a £40,000 earner:

• 5% employer match: £2,000
• 5% employee contribution: £2,000
• Total: £4,000

Remaining allowance: £56,000 — significant headroom to sacrifice more if cashflow allows.

High earners above £260,000 are subject to the tapered annual allowance, which reduces the allowance by £1 for every £2 of income above the threshold.

EV salary sacrifice: the 4% BIK opportunity

For employees who need a car, electric vehicle salary sacrifice remains one of the most tax-efficient benefits available in 2026/27.

How the BIK works

Company car benefit-in-kind (BIK) tax is charged on list price × BIK rate × your income tax rate.

For a £45,000 EV (list price):

• BIK 2026/27: 4%
• BIK charge: £45,000 × 4% = £1,800/year
• Tax on BIK (basic rate 20%): £360/year
• Tax on BIK (higher rate 40%): £720/year

Compare to a petrol equivalent at the same list price (BIK rate ~30%):

• BIK charge: £45,000 × 30% = £13,500/year
• Tax on BIK (20%): £2,700/year
• Tax on BIK (40%): £5,400/year

Saving by choosing EV over petrol (basic rate): £2,700 – £360 = £2,340/year in tax alone, before any fuel savings.

BIK rate trajectory

Even at the projected 2028/29 rate of 7%, EVs remain dramatically cheaper in BIK terms than petrol/diesel cars (typically 25–37%). The window of maximum advantage is the next 2–3 years.

Salary sacrifice EV: the total saving

Under salary sacrifice, the gross lease cost comes off before tax and NI. A £600/month gross lease cost (typical for a mid-range EV including insurance and maintenance) sacrificed at the 40% rate plus employee NI (2% at this level if salary is above £50,270):

• Monthly gross sacrifice: £600
• Income tax saved (40%): £240
• Employee NI saved (2%): £12
• Net cost: £348/month
• Plus employer NI saving (15%): £90 — often used to subsidise the employer's fleet management cost

At basic rate (20% + 8% NI):

• IT saved: £120
• NI saved: £48
• Net cost: £432/month

Childcare: legacy vouchers vs Tax-Free Childcare

Legacy childcare vouchers (closed to new entrants October 2018)

If you were signed up before October 2018, you may still be using childcare vouchers. The benefit:

• Basic rate taxpayer: save up to £933/year (£243/month NI exempt, up to £55/week)
• Higher rate taxpayer: save up to £623/year (the voucher limit is the same but higher-rate savers joined pre-2011 — post-2011 higher earners get £28/week max)

This scheme is closed — if you're not already enrolled, you cannot join.

Tax-Free Childcare (TFC)

Available to all eligible families (both parents working, earning between NMW for 16hrs/wk and £100k). The government tops up 20% on everything you put in, up to:

• Maximum government top-up: £2,000/year per child (£4,000 for disabled children)
• Based on depositing up to £10,000/year per child into a TFC account

Comparison for a basic-rate employee:

For most families not on legacy vouchers, Tax-Free Childcare gives a larger benefit — especially with multiple children. The 20% top-up is equivalent to basic-rate tax relief regardless of your tax band.

Cycle to work

Not to overlook: the Cycle to Work scheme allows salary sacrifice for bikes and equipment (up to £1,000 standard, higher for e-bikes under some schemes). Savings of 28–52% on a bike depending on your tax and NI rate remain available.

NMW floor — the critical compliance check

Salary sacrifice must never take net pay below the National Minimum Wage for the hours worked.

From April 2026:

• 21+: £12.71/hour (NLW)
• 18–20: £10.85/hour
• Under 18 / Apprentice: £8.00/hour

Example: A care worker on 37.5 hours/week at £12.71/hour earns £24,784/year gross. If they wish to sacrifice £2,400 into their pension, post-sacrifice gross is £22,384 — which equates to £22,384 ÷ 52 ÷ 37.5 = £11.48/hour — below NLW.

In this case, the maximum permissible sacrifice would bring them down to exactly £12.71/hour × 37.5 × 52 = £24,784 — meaning no sacrifice is possible for someone on the exact NLW floor.

Workers earning above NLW have more room. Always check with your employer's HR/payroll team to confirm the maximum allowable sacrifice.

Checklist: reviewing your salary sacrifice in Q2 2026

• Ask HR whether your employer is passing on any of the increased NI saving (15% vs old 13.8%)
• Review your pension contribution rate — is it still appropriate for your retirement goals?
• Check your post-sacrifice pay is above the NLW floor
• EV on the radar? Ask fleet/HR about the current employer leasing deals under salary sacrifice
• Childcare? If you have children under 12, check TFC eligibility at gov.uk/tax-free-childcare
• Annual allowance check — confirm your total pension input is within £60,000
• High earner (£100k+)? Salary sacrifice is extremely powerful for you — sacrificing to £100,000 or below recovers the full personal allowance and can generate effective 60% relief

Related reading:

• May 2026 payslip changes explained
• EV salary sacrifice case study 2025/26
• Pension vs mortgage overpayment 2026/27
• The £100,000 tax trap: personal allowance taper

Sources

• gov.uk: Salary sacrifice for employers
• HMRC: Company car benefit rates
• gov.uk: Tax-Free Childcare
• gov.uk: Pension annual allowance
• gov.uk: National Minimum Wage and salary sacrifice