Salary sacrifice has become one of the most talked-about employee benefits in recent years, and for good reason!
With the cost of living remaining high and tax rates taking a significant chunk of earnings, salary sacrifice offers UK employees a way to access valuable benefits whilst saving on income tax and National Insurance contributions.
But what exactly can you salary sacrifice? And more importantly, which schemes actually save you money?
Understanding Salary Sacrifice
Before we dive into what you can sacrifice, let’s quickly recap how it works.
Salary sacrifice is an agreement between you and your employer where you give up part of your gross salary (before tax) in exchange for a non-cash benefit. Because the benefit is provided before tax and National Insurance are calculated, you pay less on both – and so does your employer.
The Tax-Advantaged “Big Four”
Since April 2017, the government has restricted which salary sacrifice schemes retain full tax and National Insurance advantages. Today, there are four key areas where both employees and employers genuinely save money:
1. Pension Contributions
This is the most popular salary sacrifice benefit and remains one of the most tax-efficient ways to save for retirement.
When you sacrifice salary for additional pension contributions, you save on both income tax and National Insurance, whilst your employer also saves on their National Insurance liability (13.8%). Many employers pass some or all of their NI savings back to you as additional pension contributions, boosting your retirement fund even further.
Important update: From April 2029, changes are coming. The first £2,000 of salary-sacrificed pension contributions will remain NIC-free, but any amount above this will attract both employee and employer National Insurance contributions. Income tax relief remains unaffected.
Despite these future changes, pension salary sacrifice still represents excellent value and will continue to be a smart way to save for retirement.
2. Electric Cars
This is the star performer of 2026. Electric vehicle salary sacrifice schemes offer some of the best tax savings available to UK employees right now.
The Benefit-in-Kind (BiK) tax rate for electric cars is just 4% in the 2026/27 tax year (rising each year) – compared to 20-37% for petrol and diesel vehicles. This makes EVs incredibly tax-efficient.
Through these schemes, employees can save up to 60% compared to leasing privately. Everything is included in one monthly payment – the car, comprehensive insurance, maintenance, servicing, road tax, breakdown cover, and tyre replacement.
3. Cycle to Work Scheme
The Cycle to Work scheme allows you to get a bike and cycling equipment through salary sacrifice, spreading the cost over 12 months completely tax-free.
Employees can save up to 42% (higher-rate taxpayers) or 32% (basic-rate taxpayers) on the cost of a bike and accessories. After the sacrifice period, you have the option to own the bike outright at the end.
It’s not just about the savings – it’s about promoting healthier, more active lifestyles and reducing your carbon footprint. Studies show that regular cyclists take an average of 1.3 fewer sick days per year compared to non-cyclists.
4. Employer-Provided Childcare (Workplace Nurseries)
Workplace nursery schemes allow employers to provide access to on-site nurseries or contract directly with childcare providers.
Employees can salary sacrifice to pay for this childcare, saving on tax and National Insurance whilst accessing quality childcare facilities. Some companies have dedicated on-site nurseries, whilst others partner with local providers to offer corporate rates.
Given that the UK has some of the highest childcare costs in the world, this benefit can make a substantial difference to working parents’ finances.
Other Salary Sacrifice Options
Beyond the “big four” tax-advantaged schemes, there are other benefits you can access through salary sacrifice. However, these don’t offer the same level of tax savings – and in some cases, offer no tax savings at all.
Technology Schemes (TechScheme)
Technology schemes allow employees to spread the cost of expensive tech purchases like smartphones, laptops, tablets, and smartwatches over 12 months through salary deductions.
The benefit here isn’t tax savings – TechScheme is treated as a taxable benefit, so you’ll still pay income tax on it. However, you do save on National Insurance contributions (up to 12% for basic-rate taxpayers), and the scheme helps make expensive tech more affordable by spreading the cost.
Gym Membership
Gym memberships can be offered through salary sacrifice, but it’s worth understanding exactly what you’re saving – and what you’re not.
Gym memberships via salary sacrifice are taxable benefits. You’ll save on National Insurance contributions (up to 12% for basic-rate taxpayers or 8% on average), but you won’t save any income tax.
Some employees find the convenience of automatic payroll deductions makes gym membership more manageable, even if the tax savings are modest.
Additional Holiday Purchase
Some employers allow staff to buy extra annual leave through salary sacrifice. You agree to reduce your salary in exchange for additional days off.
Because you’re essentially swapping money for time off, this doesn’t create tax savings in the traditional sense. However, the arrangement can work well for employees who value flexibility and work-life balance over marginal financial gains.
Private Healthcare and Health Cash Plans
Private health insurance can be offered through salary sacrifice, though it’s a taxable benefit. You’ll pay income tax on the benefit’s value (reported via P11D), but you’ll typically access corporate rates that are cheaper than purchasing insurance privately.
The advantage here is cost, not tax savings. Corporate health insurance rates are usually significantly lower than individual policies, so even though you’re paying tax on the benefit, you’re still likely better off than buying it yourself.
What You Can’t Salary Sacrifice (Anymore)
It’s worth mentioning that some benefits that used to be available through tax-advantaged salary sacrifice no longer qualify:
- Company cars (petrol/diesel) – Tax advantages were removed in 2021 (though electric cars remain highly tax-efficient).
- School fees – Tax advantages removed in 2021.
- Accommodation – Tax advantages removed in 2021.
- Car parking – Never qualified for tax advantages.
- Groceries – Some schemes offer National Insurance savings only (around 8%).
Making the Right Choice
Whilst the government-backed tax-advantaged schemes (pensions, electric cars, cycle to work, and qualifying childcare) deliver substantial savings, other benefits may only save you a few percentage points.
The key is understanding what you’re actually saving and whether the benefit genuinely improves your financial position or quality of life.
For most UK employees, electric car salary sacrifice represents the sweet spot: massive tax savings, access to a brand-new vehicle with everything included, no upfront costs, and the flexibility to drive the latest models without the depreciation risk of ownership.
If you’re considering salary sacrifice benefits, start with the schemes that deliver real value – your wallet will thank you.
You might like this guide: What Is the Best Electric Car to Lease?