Salary exchange calculator

Salary sacrifice is an arrangement between you and your employer where you agree to give up part of your gross (pre-tax) salary in exchange for a non-cash benefit. It’s commonly used for things like:

• Pension contributions
• Cycle to Work schemes
• Company cars
• Childcare vouchers (closed to new applicants since 2018)

How it works:

Instead of receiving the full salary, your employer puts the “sacrificed” amount directly towards the chosen benefit. Because the deduction happens before tax and National Insurance (NI) are calculated, you may pay less, boosting your overall take-home value.

Example:

If your salary is £40,000 and you sacrifice £2,000 for pension contributions:

• Your new gross salary becomes £38,000
• You pay tax and NI on £38,000 instead of £40,000
• £2,000 goes straight into your pension

Benefits:

• Tax efficiency: You pay less Income Tax and NI
• Boost to pensions: Especially if your employer passes on their NI savings to your pension pot
• Cost-effective access to benefits: Like bikes or electric vehicles

Things to consider:

• It may affect your mortgage applications, as your official salary is reduced
• It can impact state benefits or statutory pay (e.g. maternity or sick pay)
• Your employer must ensure your salary doesn’t fall below National Minimum Wage after sacrifice