Salary sacrifice reduces your gross pay before tax is calculated, cutting both income tax and National Insurance. At a £35,000 salary sacrificing £3,000/year into a pension, a basic-rate taxpayer saves £840/year (£600 income tax + £240 NI) — money that would otherwise go to HMRC. Higher-rate taxpayers (earnings above £50,270) save up to 48p per £1 sacrificed.
| Item | Without sacrifice | With £3,000 sacrifice |
|---|---|---|
| Gross salary | £35,000 | £32,000 |
| Income tax (20%) | £4,486 | £3,886 |
| National Insurance (8%) | £1,794 | £1,554 |
| Net take-home/year | £28,720 | £26,560 + pension |
| Annual saving | — | £840 saved in tax/NI |
Source: HMRC rates and allowances. Figures are illustrative. Always confirm with your employer and a qualified adviser. Salary sacrifice is governed by the Income Tax (Earnings and Pensions) Act 2003.
Sacrificing £2,250 only reduces your take-home pay by £1,620 per year. You save £630 in tax and NI.