Salary Sacrifice Calculator: How Much Can You Save? (2025 Guide)
Ultimate Salary Calculator Team
Our content is written and reviewed by finance and tax enthusiasts to ensure accuracy.
Salary sacrifice could be one of the most valuable employee benefits you're not taking full advantage of. From electric cars to extra pension contributions, cycle-to-work schemes to childcare vouchers, salary sacrifice can save you hundreds or even thousands of pounds a year in tax and National Insurance.
But it's not always a straightforward decision. Understanding how salary sacrifice works, what benefits are available, and crucially, how much you'll actually save is essential for making the right choice for your financial situation.
What Is Salary Sacrifice?
Salary sacrifice is an arrangement where you give up part of your gross salary in exchange for non-cash benefits. Because you receive less cash salary, you pay less income tax and National Insurance – and so does your employer.
How Salary Sacrifice Works
- Agree with employer: To reduce your contractual salary
- Receive benefit: Instead of the cash
- Pay less tax: On your reduced salary
- Save money: Through lower tax and NI contributions
Key Requirements
- Contractual arrangement: Must be formal agreement with employer
- Genuine sacrifice: Must actually reduce your salary
- Not below minimum wage: Salary after sacrifice must meet legal minimums
- Employer participation: Your employer must offer the scheme
Current Salary Sacrifice Benefits (2025)
The government restricts which benefits can be offered through salary sacrifice:
Fully Approved Benefits
- Pension contributions
- Electric and low-emission cars
- Cycle-to-work schemes
- Ultra-low emission vehicles
Limited Benefits
- Mobile phones (one per employee)
- Computer equipment
- Workplace EV charging
Grandfathered Benefits
- Childcare vouchers (existing only)
- Workplace nurseries
Electric Car Salary Sacrifice: The Big Winner
Electric vehicle salary sacrifice has become incredibly popular due to massive tax advantages:
Why EVs Work So Well
- Low BIK rate: 2% for pure electric cars in 2025-26
- No fuel benefit: Electricity charging isn't treated as taxable fuel
- Maintenance included: Usually covers servicing, insurance, breakdown
- Employer NI savings: Often shared with employee
Real Example: Tesla Model 3 - £450/month
Employee earning £40,000 (Basic Rate)
Without Salary Sacrifice (Personal Lease)
- Monthly lease: £450
- Insurance: ~£100
- Maintenance: ~£50
- Total: £600/month
With Salary Sacrifice
- Gross reduction: £450
- Tax saving: £90
- NI saving: £54
- BIK tax: £21.60
- Net cost: £327.60/month
- Annual saving: £3,269
Higher Rate Taxpayer Example (£60,000 salary)
- Tax saving: £450 × 40% = £180/month
- NI saving: £450 × 2% = £9/month
- BIK tax: £450 × 12 × 2% × 40% = £43.20/month
- Net monthly cost: £304.20
- Annual saving: £3,549
Pension Salary Sacrifice
Adding extra pension contributions through salary sacrifice is highly tax-efficient:
Example: Additional £2,000 Pension Contribution
Employee earning £35,000
Without Salary Sacrifice
- Pay £2,000 from net salary
- Claim 20% tax relief = £400
- Actual cost: £1,600
With Salary Sacrifice
- Tax saving: £2,000 × 20% = £400
- NI saving: £2,000 × 12% = £240
- Actual cost: £1,360
- Extra saving: £240
Annual Allowance Considerations
- Standard allowance: £60,000 for 2025-26
- Includes employer contributions: These count toward your allowance
- Carry forward: Can use previous years' unused allowances
- High earners: May face tapered allowances
Cycle-to-Work Schemes
Still popular and effective for regular cyclists:
Example: £1,500 Bike Over 18 Months
Monthly sacrifice: £83.33
Basic Rate Taxpayer
- Tax saving: £16.67/month
- NI saving: £10/month
- Net cost: £56.66/month
- Total saving: £480 (32% off)
Higher Rate Taxpayer
- Tax saving: £33.33/month
- NI saving: £1.67/month
- Net cost: £48.33/month
- Total saving: £630 (42% off)
Calculate Your Salary Sacrifice Savings
Use our calculator to see how salary sacrifice affects your take-home pay:
What You Can't Salary Sacrifice
Important to understand current restrictions:
Banned Benefits (since April 2017)
- Gym memberships
- Private medical insurance (new schemes)
- Critical illness cover
- Most insurance products
- Retail vouchers
- Non-job-related accommodation
Calculating Your Savings
Basic Formula
Monthly saving = (Sacrifice amount × Tax rate) + (Sacrifice amount × NI rate) - BIK tax
Basic Rate (20%)
- Income tax: 20%
- National Insurance: 12%
- Total saving: 32%
Higher Rate (40%)
- Income tax: 40%
- National Insurance: 2%
- Total saving: 42%
Additional Rate (45%)
- Income tax: 45%
- National Insurance: 2%
- Total saving: 47%
Potential Drawbacks
Reduced Pensionable Salary
Future pension calculations, life insurance, and redundancy payments are based on your lower salary.
Minimum Wage Issues
Final salary must not fall below minimum wage (£11.44/hour for over-23s in 2025-26).
Mortgage Applications
Lenders focus on cash salary, so salary sacrifice might reduce borrowing capacity.
Other Benefit Calculations
Statutory benefits like maternity pay and state benefits are based on your lower salary.
Optimizing Your Strategy
Prioritization Order
- Pension contributions: Up to annual allowance limits
- Electric vehicle: If you need a car anyway
- Cycle-to-work: If you cycle regularly
- Mobile phone: Small but worthwhile saving
Timing Considerations
- Start of tax year: Maximizes annual savings
- Before pay rises: Maintain the sacrifice proportion
- Career changes: Review when changing jobs
Common Mistakes to Avoid
Not Reading the Fine Print
- Early termination charges
- Damage costs beyond normal wear
- Minimum business use requirements
Ignoring Impact on Other Benefits
- Reduced future pension calculations
- Lower life insurance cover
- Mortgage borrowing capacity
Future of Salary Sacrifice
Potential Changes
- Electric vehicle BIK: Will increase gradually over time
- New benefits: Government may approve additional options
- Simplification: Possible streamlining of rules
Planning Considerations
- Lock in current rates: Especially for EVs while BIK rates are low
- Review annually: As tax rates and benefits change
- Stay informed: Rules change regularly
Making Your Decision
Questions to Ask
- Will I actually use the benefit? No point sacrificing for unused perks
- How does this affect my other finances? Consider mortgage, pensions, benefits
- What are the total costs? Include BIK tax and any restrictions
- Can I afford the commitment? Most schemes require minimum periods
- Is this the best use of my salary? Compare with alternatives
Getting Started
- Check with HR: What schemes does your employer offer?
- Calculate the savings: Use our calculator for accurate figures
- Read the small print: Understand all terms and conditions
- Start with high-value benefits: Pensions and EVs usually offer biggest savings
- Review annually: Ensure schemes still work for your situation
Salary sacrifice can provide significant tax savings, but it's not suitable for everyone or every situation. The key is understanding what benefits are available through your employer, how much you'll actually save after considering all factors, and what impact it has on your other finances.
For many people, particularly higher-rate taxpayers with access to electric vehicle schemes, the savings can be substantial. But always calculate the real cost and consider the broader implications before committing.
Use our salary sacrifice calculator above to work out exactly how much you could save with different benefit options and make an informed decision about what works best for your situation.