Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Salary sacrifice definition

What does Salary sacrifice mean? Salary sacrifice describes a contractual change under which an employee agrees to give up part of their future cash pay in return for a non‑cash benefit, most commonly an increased employer pension contribution of equivalent value. It is a descriptive term rather than a statutory definition. In the UK, HMRC treats it under the optional remuneration arrangements regime; tax/NIC advantages have been curtailed for many benefits, but employer pension contributions via salary sacrifice remain generally tax‑ and NIC‑efficient. In Ireland, the concept is recognised in Revenue guidance; tax/PRSI/USC outcomes depend on specific statutory reliefs (for example, approved pension,...

Implementing Salary Sacrifice: HMRC requirements, contractual variation, communications, clearance and compliance, including FA 2017 rules and the April 2029 £2,000 NICs exemption cap for pension salary exchange (UK)

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Practice notes

FORTHCOMING CHANGE:

On 26 November 2025, within Budget 2025, it was confirmed that from April 2029 only the first £2,000 each tax year of pension saving made under a salary sacrifice arrangement will escape National Insurance contributions (NICs). Any amount an employee sacrifices above £2,000 a year will attract both employer and employee NICs, meaning the surplus over £2,000 will, for NICs, be handled in the same manner as other employee workplace pension payments. Employer pension funding is unchanged, and income tax relief is also preserved. Employers must record and report the total value of salary given up using the existing payroll software already in use by employers for reporting purposes, and HMRC has pledged to work with stakeholders as appropriate in practice. HMRC will issue further guidance ‘before April 2029’. The National Insurance Contributions (Employer Pensions Contributions) Bill 2026 will add a new subsection to section 4 of the Social Security Contributions and Benefits Act 1992, enabling regulations to deem sacrificed sums to be remuneration arising from employment for NICs purposes. See: Policy paper: salary sacrifice reform for pension contributions and National Insurance Contributions (Employer Pensions Contributions) Bill 2026. Since 6 April 2017, the income tax and National Insurance contributions...

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Lewin Higgins-Green

FTI Consulting

Lewin Higgins-Green leads FTI Consulting’s Employment Tax & Reward offering in the UK. Lewin works with clients across a wide range of sectors, with a strong focus on financial services, and advises clients on employee related tax matters, both for domestic and internationally mobile employees. Lewin is a chartered tax advisor and a member of the Employment Taxes Technical Sub-Committee of the Chartered Institute of Taxation....

Web page updated on 21/05/2026

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