GUIDE

Salary sacrifice versus net pay

Last checked September 2026 · Tax year 2026/27 · Rest of UK · £35,000 salary · 5% employee pension · No student loan

Two schemes can both say “5%”. They do not leave the same cash in the month if one is salary sacrifice and one is a net pay arrangement. Sacrifice typically reduces the pay that income tax and National Insurance see. Net pay typically reduces taxable pay only.

Worked example

Jordan earns £35,000 in England and puts 5% (£1,750) into a workplace pension. No student loan. Standard allowance.

A — salary sacrifice

Pay treated as £33,250 for tax and NI.

• Income tax: 20% × (£33,250 − £12,570) = £4,136.00
• Employee NI: 8% × (£33,250 − £12,570) = £1,654.40
• Pension: £1,750.00
• Take-home: £27,459.60

B — net pay arrangement

Taxable pay £33,250. NI still sees £35,000.

• Income tax: £4,136.00 (same as A)
• Employee NI: 8% × (£35,000 − £12,570) = £1,794.40
• Pension: £1,750.00
• Take-home: £27,319.60

Same contribution into the pot. Sacrifice leaves £140 a year more in this illustration — the 8% NI on the sacrificed £1,750. That is the mechanism, not a recommendation to change scheme.

Compare both modes in the calculator

Your employer booklet decides whether a scheme is sacrifice or net pay. Relief at source is a third design and is not modelled here. Sources: HMRC employer thresholds 2026 to 2027.