How salary sacrifice saves you money
You agree to give up part of your salary, and your employer spends it on a benefit instead: a pension contribution, a car or a bike. Your pay is lower, so you pay less income tax, National Insurance and student loan, and the real cost is less than the amount you give up. Your employer saves 15% National Insurance on the pay it no longer pays.
There are limits. A sacrifice can’t take your pay below the minimum wage, and pay below £6,708 a year means this job no longer earns you a State Pension year. Salary sacrifice explained.
Electric cars and bikes
A salary sacrifice car is taxed as a company car. For electric cars and plug-in hybrids up to 75g/km, the car benefit is the list price, less up to £5,000 you paid towards it, times a percentage: 4% for an electric car in 2026/27, then 5% in 2027/28, 7% in 2028/29 and 9% in 2029/30. You pay income tax on the benefit but no National Insurance; your employer pays 15% Class 1A on it. Electric car benefit-in-kind rates to 2030.
Bikes carry no benefit in kind. At the end of the hire you can usually buy the bike for its fair market value: about 18% of the cost for bikes under £500, or 25% for £500 or more, after 12 months.
The April 2029 pension cap
From 6 April 2029, pension sacrifice above £2,000 a year will be charged National Insurance as if it were salary. Income tax relief stays. On a £70,000 salary with a £10,000 sacrifice, the extra £8,000 costs you 2% (£160 a year) and cuts your employer’s saving from £1,500 to £300. Below £50,270, the extra National Insurance is 8%, so the cap costs more. The April 2029 cap in full.