{"id":24556,"date":"2023-04-04T11:52:11","date_gmt":"2023-04-04T10:52:11","guid":{"rendered":"https:\/\/taxfix.com\/en-uk\/?p=24556"},"modified":"2026-01-27T13:28:41","modified_gmt":"2026-01-27T13:28:41","slug":"how-does-salary-sacrifice-work","status":"publish","type":"post","link":"https:\/\/taxfix.com\/en-uk\/high-earner-tax-returns\/how-does-salary-sacrifice-work\/","title":{"rendered":"How does salary sacrifice work?"},"content":{"rendered":"\n

If you’re wondering how does salary sacrifice work<\/strong><\/em>, you’re not alone. This tax-efficient strategy allows you to exchange a portion of your salary for non-cash benefits, potentially lowering your taxable income. It\u2019s a great hack to boost your tax efficiency and save money on taxes. Keep reading for the answers to these burning questions! \ud83d\udd25<\/p>\n\n\n\n

In this guide, we\u2019ll cover:<\/p>\n\n\n\n

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  1. What actually is salary sacrifice?<\/a><\/li>\n\n\n\n
  2. Who would sacrifice their salary?<\/a> <\/li>\n\n\n\n
  3. How is my \u00a31,600 bike taxed with \u00a3101,000 salary?<\/a><\/li>\n\n\n\n
  4. How have salary sacrifice rules changed?<\/a><\/li>\n\n\n\n
  5. Why use salary sacrifice for your pension? <\/a><\/li>\n\n\n\n
  6. Is salary sacrifice worth it?<\/a><\/li>\n\n\n\n
  7. What are some examples of salary sacrifice benefits?<\/a><\/li>\n<\/ol>\n\n\n\n

    What actually is salary sacrifice? <\/h2>\n\n\n\n

    So, how does salary sacrifice work?<\/strong> At its core, salary sacrifice is a scheme where you give up part of your salary in exchange for a non-cash benefit. This can be bigger pension contributions, a travel card, a work phone etc. <\/p>\n\n\n

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    Who would sacrifice their salary?<\/h2>\n\n\n\n

    The 1 million dollar question. Who the heck would be up for this? Generally, higher earners benefit the most because it can be a tool to increase your take home pay.<\/p>\n\n\n\n

    But, how does salary sacrifice work <\/strong>to reduce your tax liability? <\/p>\n\n\n\n

    Basically, the salary sacrifice scheme replaces your cash salary with non-taxable – or tax relieved – income. An example could be that you sacrifice \u00a31,600 of your salary for a bike through your employer\u2019s salary sacrifice scheme. <\/p>\n\n\n\n

    Here\u2019s an example. Imagine you have a \u00a3101,000 salary, and you exchange \u00a31,600 of that on a bike.<\/p>\n\n\n\n

    How is my \u00a31,600 bike taxed with \u00a3101,000 salary?<\/h2>\n\n\n\n
    <\/td>Tax rate (%) paid on bike<\/td>Cost to you<\/td>Gross salary (cash)<\/td>Taxable income \ud83d\udc40<\/strong><\/td>Tax-free income<\/td><\/tr>
    With salary sacrifice<\/td>0%<\/td>\u00a30<\/td>\u00a399,400<\/td>\u00a386,830<\/strong><\/td>\u00a314,170<\/td><\/tr>
    Non-salary sacrifice benefit<\/td>40%<\/td>\u00a3640 (tax deducted from salary)<\/td>\u00a3100,360<\/td>\u00a387,970<\/strong><\/td>\u00a313,350<\/td><\/tr>
    Without any employee benefit<\/td>40% + 20% <\/td>\u00a31,600(bought after tax from take home pay)<\/td>\u00a3101,000<\/td>\u00a388,930<\/strong><\/td>\u00a312,070<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    As you can see from the above table, your taxable income is highest when you buy a bike outside any scheme, whether that\u2019s a benefit in kind or salary sacrifice. (We\u2019ll come onto the difference between these things later.) <\/p>\n\n\n\n

    With salary sacrifice, you avoid being tipped into the 60% tax bracket<\/a> which affects people who earn between \u00a3100,000 – \u00a3125,140. Instead, your \u00a3101,000 salary is made through a combination of cash and non-cash remuneration. <\/p>\n\n\n<\/div> \n\n

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    Ready to make the most of salary sacrifice?<\/h2>\n\n \n \n
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    If you\u2019re looking to reduce taxable income and get more from your salary, we’re here to help! Our expert accountants can guide you through salary sacrifice schemes and ensure you’re maximising your tax benefits. Let’s get saving!<\/p>\n<\/div>\n <\/div>\n\n \n \n

    \n\n Get started <\/a>\n\n\n <\/div>\n\n \n <\/div>\n<\/div> \n\n
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    How have salary sacrifice rules changed? <\/h2>\n\n\n\n

    Salary sacrifice schemes used to cover a wider range of tax-free benefits, including gym memberships, travelcards, and shopping vouchers. However, changes introduced by the government which cut back on the fun<\/s> tax-efficiency, fearing that many employees and employers were sidestepping their tax liability via salary sacrifice.  <\/p>\n\n\n\n

    Today, many company perks are now taxable. They\u2019re still more tax-efficient than a cash salary, but you get a tax relief on them rather than them being non-taxable benefits. The tax is recorded and paid using a form called the P11D<\/a>. <\/p>\n\n\n\n

    That said, some benefits remain non-taxable, including:<\/p>\n\n\n\n