Salary Sacrifice Scheme: How to get the greatest benefit from using them.

What Is Salary Sacrifice?

With salary sacrifice, you agree to swap part of your salary for a benefit of equal value. Instead of taking that money home in your payslip, you put it towards something like pension contributions, childcare support, or a new bike through a cycle-to-work scheme.

So why choose salary sacrifice over just buying these things yourself?

Because it saves you money. By reducing your salary before tax and National Insurance are calculated, you pay less of both. The savings show up straight away in your payslip, there’s no need to claim anything back from HMRC.

That’s why so many people use salary sacrifice to grow their pension, cover childcare costs, or take advantage of workplace perks while keeping more of their income in their pocket.

How does salary sacrifice work?

Salary sacrifice sounds complicated, but it’s actually really simple. Here’s how it works for you:

1. Sign the agreement
First, you’ll agree with your employer to give up a set amount of your salary in exchange for a benefit you want like a car, childcare, or extra pension savings.

2. Watch your salary adjust
That amount comes off your gross pay before tax and National Insurance are calculated. Because it isn’t taxed, you save money straight away, and so does your employer.

3. Enjoy your benefit
Once it’s all set up, you can start using your benefit. That could mean taking your company car for a spin, cycling to work on a new bike, or building up your pension pot for the future.

It is important to remember:

• Not every benefit qualifies for salary sacrifice.

• You can’t reduce your pay below the National Minimum Wage.

• Giving up part of your salary might affect things like statutory sick pay or redundancy pay.

What are some examples of salary sacrifice schemes?

There are a few different ways you can use salary sacrifice in the UK, and each comes with its own benefits. Here are two of the most common:

Pension salary sacrifice
The most popular option is putting part of your salary straight into your pension. Instead of paying Income Tax and National Insurance on that money, it goes directly towards your future savings.

By law, the minimum contribution is 8% of your earnings, that’s at least 3% from your employer and 5% from you. But many employers offer more. A pension contribution of 10–15% is usually seen as generous, and some companies even match what you put in or set a higher fixed rate, like 12% overall. The bottom line? Salary sacrifice can help you grow your pension pot much faster, while saving on tax today.

Workplace nursery scheme
Childcare costs can be eye-watering, but salary sacrifice can make them easier to manage. With a workplace nursery scheme, you can use part of your salary to pay for childcare before tax is taken off.

Some employers have their own on-site nurseries, while others partner with local providers or let you find your own. However it’s set up, the idea is simple: you use pre-tax pay to cover childcare costs, saving money while still getting the support you need.

Cycle to work scheme

If you’ve been thinking about buying a bike, a cycle to work scheme could be a smart way to do it. Instead of paying upfront, you spread the cost over a year and pay from your gross salary, which means you save on tax and National Insurance at the same time.

From your side, it’s a win-win: you save money on the bike (and any accessories) and cut down on travel costs, all while boosting your health and fitness. From your employer’s side, it encourages a greener, more active workplace.

How much can you save? Depending on your tax bracket and the price of your bike, you could save up to 42% of the total cost. Not bad for simply choosing to swap a car or bus ride for some pedal power.

Electric Vehicle (EV) scheme

An electric car might feel like a big, expensive purchase, but with a salary sacrifice scheme, it suddenly becomes a lot more affordable. Just like the cycle to work scheme, you spread the cost through your monthly salary before tax and National Insurance are taken off.

That means you save money straight away, while driving a brand-new EV that’s cheaper to run and kinder to the planet. Whether you’re looking to cut down on fuel costs, reduce your carbon footprint, or just enjoy the perks of an electric car, this scheme makes it much easier to get behind the wheel.

What are the advantages of salary sacrifice schemes for you?

Salary sacrifice schemes can give you a lot more than just a new bike or a bigger pension pot. They’re designed to save you money, ease financial pressure, and even improve your wellbeing. Here’s how they can work for you:

Save money on everyday costs
Childcare, transport, even tech purchases, all of these can add up quickly. By using salary sacrifice, you cut your taxable income, which means you pay less Income Tax and National Insurance. On top of that, you spread the cost of bigger purchases across the year, making them much easier to manage.

Access more benefits.
Without salary sacrifice, things like new laptops, bikes, or phones might feel out of reach. With these schemes, you can get them in an affordable way, with your employer’s support. It’s a chance to enjoy benefits you might not have thought possible otherwise.

Peace of mind for the future.
Worried about retirement or the cost of childcare? Salary sacrifice can ease that burden. Extra pension contributions build your savings for later life, while childcare schemes make family life a little more affordable right now.

Better health and wellbeing
Schemes like cycle-to-work don’t just save you money, they also get you moving. More exercise means better physical health, a boost to your mental wellbeing, and a happier, healthier lifestyle overall.

How much of your salary can you sacrifice?

Technically, there’s no set cap on how much of your salary you can put into salary sacrifice schemes. But there are a couple of important rules to keep in mind.

For pensions, for example, you can only contribute up to £60,000 a year before you lose the tax benefits. And with any scheme, your salary can’t drop below the National Minimum Wage once the sacrifice is taken off.

So, while you have plenty of flexibility, it’s all about finding the balance making the most of the tax savings without sacrificing so much that it affects your take-home pay.

Do you need a credit check for salary sacrifice?

For most salary sacrifice schemes — like pensions, childcare, or even an EV lease — you usually won’t need a credit check. What really matters is that you’re eligible for the benefit and that your take-home pay won’t fall below the National Minimum Wage after the sacrifice.

That said, if the scheme involves a loan to buy an Electric Vehicle car, then a credit check might be required to make sure you can afford the repayments.

Sometimes, it’s not you who gets checked at all, it’s your employer, since they’re the ones setting up the agreement with the provider.

So, the short answer, in most cases, you won’t need to worry about a credit check, but it can depend on the specific scheme and how your company runs it.