Question 1

What is salary sacrifice and how does it work?

Accepted Answer

Salary sacrifice is an arrangement where you agree to reduce your contractual gross salary in exchange for a non-cash benefit from your employer, such as pension contributions, an electric vehicle, or a cycle-to-work scheme. Because the sacrifice reduces your gross pay before tax and National Insurance are calculated, you save both — making the benefit cheaper than buying it from net pay.

Question 2

How much tax do I save with salary sacrifice?

Accepted Answer

Your saving depends on your marginal tax rate. Basic rate taxpayers save 28% (20% income tax + 8% NI), higher rate taxpayers save 42% (40% tax + 2% NI), and additional rate taxpayers save 47% (45% tax + 2% NI). If you are in the 60% tax trap zone (income between £100,000 and £125,140), you can save up to 62%.

Question 3

Does salary sacrifice affect my mortgage application?

Accepted Answer

Yes. Salary sacrifice reduces your contractual gross salary, which is the figure most mortgage lenders use for affordability calculations. A large sacrifice could reduce the amount you can borrow. Some lenders will add back pension sacrifice contributions — check with your broker before committing to a large arrangement.

Question 4

What is the National Minimum Wage floor for salary sacrifice?

Accepted Answer

Your employer cannot allow a salary sacrifice arrangement that would reduce your cash pay below the National Minimum Wage. For 2025/26, the NMW for workers aged 21 and over is £12.21 per hour, which equates to approximately £23,810 per year based on a 37.5-hour week. Our calculator warns you if your sacrifice would breach this floor.

Question 5

How is an electric vehicle salary sacrifice taxed?

Accepted Answer

When you sacrifice salary for an electric vehicle, you save tax and NI on the sacrificed amount. However, you will pay Benefit in Kind (BIK) tax on 2% of the car's P11D list price (for zero-emission vehicles in 2025/26). Even with BIK, an EV salary sacrifice scheme is typically much cheaper than a personal lease because of the combined tax and NI savings.

Question 6

Can my employer pass through their NI saving to me?

Accepted Answer

Yes. When you sacrifice salary, your employer also saves National Insurance (15% in 2025/26) on the amount sacrificed. Some employers pass all or part of this saving on to you — often as an additional pension contribution. This can significantly increase the total value of your sacrifice arrangement. Our calculator includes a toggle to model this.

Salary Sacrifice Calculator

Your Savings Breakdown

Before vs After Sacrifice

Mortgage Impact

Savings by Tax Band

Understanding Salary Sacrifice