The idea of salary sacrifice is that you give up some of your salary in return for a pre-tax benefit of some kind. This saves any income tax and national insurance (NI) contributions you would otherwise have paid, plus it saves your employer national insurance contributions too. If your employer is kind enough to add these to the amount paid in to, say, a pension scheme on your behalf, then every £1 of salary sacrificed magically becomes £1.91 for a higher-rate taxpayer.
That’s because the 12.8% of NI saved and contributed by your employer turns a £100 contribution into £112.8 and the combined income tax and NI saved by an employee claws back another 41%. So £112.8/0.59 is £191. For a basic-rate taxpayer £100 becomes £163 (£112.8/0.69).
There are catches. Pensions are a long-term investment – hopeless if you might need the cash back quickly. Also your lower declared salary may reduce sickness and maternity payments and even overtime rates all based on it. You may also find the amount on offer from mortgage brokers is reduced to a multiple of your new lower salary.