Salary sacrifice is not just for electric cars. It is a broad framework that covers a range of employee benefits, all operating on the same principle: you give up a portion of your gross pay in exchange for a non-cash benefit, reducing your income tax and National Insurance at the same time.
This guide covers what HMRC allows to be included in salary sacrifice arrangements, what the rules are, and where electric cars fit into the wider picture.
Key Takeaways
- Salary sacrifice covers a wide range of employee benefits, including pension contributions, electric cars, cycle-to-work schemes, childcare (legacy vouchers), and holiday purchase.
- The benefit must be provided by the employer — you cannot sacrifice salary for personal purchases.
- The sacrifice cannot reduce your earnings below the National Minimum Wage.
- Electric car salary sacrifice is one of the most financially beneficial forms because the BIK rate for EVs is 4% in 2026/27, keeping the tax cost of the car benefit very low.
- For full details on how an EV salary sacrifice scheme works and how much you can save, read our salary sacrifice electric car guide.
How salary sacrifice works
A salary sacrifice arrangement is an agreement between you and your employer to reduce your contractual pay in exchange for a non-cash benefit. HMRC requires that the arrangement is a genuine change to your employment contract — not just an informal agreement.
Because your gross pay is reduced, you pay income tax and National Insurance on a lower figure. This is where the saving comes from. The benefit itself may be taxable as a Benefit-in-Kind (BIK), but many of the most popular salary sacrifice benefits are either exempt from BIK or subject to a very low rate.
The complete list of what can be included
Pension contributions
Pension salary sacrifice is the most widely used form of salary sacrifice in the UK. Instead of making personal pension contributions from post-tax pay, the contributions are paid by the employer directly into your pension from your gross salary. You save income tax and NI on every pound contributed.
The government announced in 2025 that from April 2029, an employer NI charge will apply to pension salary sacrifice contributions above £2,000 per annum. Below that threshold, the current arrangement continues. Verify the current rules at GOV.UK.
BIK: No BIK applies to pension contributions.
Electric car salary sacrifice
An employer leases a fully electric car and provides it to the employee via a salary sacrifice arrangement. The monthly lease cost is deducted from your gross salary, saving income tax and NI. Because the car is a company car benefit, BIK tax applies.
For fully electric cars, the BIK rate is 4% of the P11D value in 2026/27 — the lowest rate available for any company car category. This makes electric car salary sacrifice one of the most tax-efficient forms of salary sacrifice available.
BIK: 4% in 2026/27 (rising to 5% in 2027/28, 7% in 2028/29, 9% in 2029/30 — verify at GOV.UK).
Cycle to Work scheme
Cycle to Work allows employees to obtain a bicycle and cycling equipment through salary sacrifice. The cycle and any associated safety equipment (helmet, lights, lock) are provided by the employer.
HMRC allows the scheme up to £1,000 without requiring a formal consumer credit licence. For amounts above £1,000, employers need to use an HMRC-approved administrator.
BIK: A tax exemption applies to cycles and cycling safety equipment provided for qualifying journeys to work. No BIK is charged on compliant schemes.
Childcare vouchers (legacy only)
The childcare voucher scheme closed to new applicants in October 2018. Employees who joined before that date can continue to use it. If you are already on the scheme, you can continue; new joiners cannot access it.
The replacement system is Tax-Free Childcare, which operates through a government-backed account and is separate from salary sacrifice.
BIK: Legacy vouchers are exempt up to the monthly limit (£243 per month for basic-rate taxpayers, lower for higher-rate taxpayers — verify at GOV.UK).
Workplace nursery
Employers can provide or fund workplace nursery provision as a salary sacrifice benefit. The arrangement must involve the employer having an active financial stake in the nursery (not simply paying fees to an external provider).
BIK: Exempt from income tax and NI when the conditions are met.
Holiday purchase (annual leave buy)
Some employers offer the option to buy additional annual leave through salary sacrifice. If you purchase extra days of leave, the cost of those days is deducted from your gross pay, providing a tax and NI saving.
BIK: No BIK applies to additional annual leave purchased this way.
Technology schemes
Some employers offer home computing or technology equipment through salary sacrifice. These schemes allow employees to obtain tablets, laptops, or phones via a salary sacrifice arrangement.
From 2017, HMRC removed the exempt BIK status for employer-provided computers used privately. Technology schemes may now generate a BIK charge depending on the arrangement. Check the specific terms with your employer.
BIK: Varies depending on the equipment and arrangement. Confirm with your employer.
Gym membership
Some employers offer gym membership or health and fitness benefits through salary sacrifice. However, gym membership provided by employers typically generates a BIK charge, which reduces the tax efficiency compared to other scheme types.
BIK: Standard BIK rules apply. The saving is less compelling than for pensions or electric cars.
Car parking
Employers can provide car parking facilities (at or near the workplace) through salary sacrifice. A BIK exemption applies to workplace parking.
BIK: Exempt for workplace car parking.
What cannot be included in salary sacrifice
HMRC sets clear limits on what salary sacrifice covers. The following cannot be included:
- Cash benefits — you cannot sacrifice salary in exchange for a cash payment. The benefit must be non-cash.
- General personal purchases — the benefit must be provided or arranged by the employer.
- Any amount that would take your pay below National Minimum Wage — the sacrifice is capped at the point where your earnings fall to the NMW threshold.
- Benefits that are already exempt from tax and NI — there is no additional saving to be gained through salary sacrifice for benefits that are already tax-free.
Which salary sacrifice benefit gives the best saving?
The tax efficiency of each scheme depends on your income tax rate and the BIK treatment of the benefit.
| Benefit | Income tax saving | NI saving | BIK charge? |
|---|---|---|---|
| Pension contributions | Yes | Yes | No |
| Electric car | Yes | Yes | Yes (4% rate 2026/27) |
| Cycle to Work | Yes | Yes | No (exempt) |
| Workplace nursery | Yes | Yes | No (exempt) |
| Holiday purchase | Yes | Yes | No |
| Technology | Yes | Yes | Potentially yes |
| Gym membership | Yes | Yes | Yes (standard rate) |
For most employees, pension salary sacrifice and electric car salary sacrifice offer the best combination of saving and practical benefit. Pension contributions have the highest pure tax efficiency (no BIK at all). Electric car salary sacrifice gives you a real, tangible benefit — a new car, insured and maintained — at a tax cost that is far lower than for any other company car category.
Combining salary sacrifice benefits
You can use multiple salary sacrifice schemes simultaneously, as long as your combined sacrifice does not take your earnings below the National Minimum Wage. For example, using pension salary sacrifice and an electric car scheme at the same time is entirely permissible.
For employees in the £100,000–£125,140 adjusted net income range (where the personal allowance is being withdrawn), combining salary sacrifice schemes can be particularly effective at reducing adjusted net income below £100,000 and restoring the personal allowance.
Frequently Asked Questions
Can my employer refuse to offer salary sacrifice? Yes. Salary sacrifice is voluntary for employers. There is no legal obligation to offer it. Some employers choose not to offer salary sacrifice schemes due to the administrative overhead, concerns about reduced gross pay affecting pension calculations, or other policy reasons.
Can I use multiple salary sacrifice schemes at the same time? Yes. You can use multiple salary sacrifice schemes simultaneously, as long as your combined sacrifice does not take your earnings below the National Minimum Wage. For example, using pension salary sacrifice and an electric car scheme at the same time is entirely permissible.
If I am on salary sacrifice for a pension and I want to add an EV scheme, do I need to change my contract again? Yes. Each salary sacrifice arrangement requires a separate contractual change. If you already have a pension salary sacrifice arrangement, adding an EV scheme requires an additional agreement. Your employer will manage this through their HR or payroll system.