Salary sacrifice — your savings explained

The principle

Salary sacrifice means the employee agrees to take a lower contractual salary in exchange for a non-cash benefit. The reduction happens before tax and NI calculate, so both employee and employer save NI, and the employee also saves income tax.

You manage sacrifice arrangements per employee, on the Employment tab.

Supported schemes

Pension

The most common reason to use sacrifice. Covered in detail in chapter 4.

Cycle to work

The employee sacrifices monthly salary over 12 to 18 months in exchange for a tax-efficient bike and accessories.

• Tax and NI savings both sides
• Typical bike value cap: £1,000 (set by scheme operators like Cyclescheme)
• The bike technically remains employer property until end of scheme; transferred to the employee at fair market value at the end

Electric vehicle scheme

The employee sacrifices monthly salary in exchange for an EV lease.

• Tax and NI savings on the sacrificed amount
• The car has a Benefit in Kind value to declare to HMRC — currently 2% of list price for fully electric vehicles (FY26-27, rising 1% per year)
• Net effect is still strongly positive vs leasing privately

Holiday buy

The employee sacrifices salary in exchange for additional annual leave days (typically up to 5 extra days).

• Tax and NI savings proportional to the sacrifice
• Cost-neutral to employer

Childcare voucher (legacy)

Pre-October 2018 schemes only — closed to new entrants. Existing members can continue. For new employees, point them at the gov.uk Tax-Free Childcare scheme instead (outside payroll).

Setting up an arrangement

1. Open the employee detail page > Employment tab > Salary sacrifice.
2. Click Add arrangement.
3. Pick the scheme type, the start date, and the amount (a fixed amount per period or a percentage).
4. Save.

From the next pay run onwards, the sacrifice reduces taxable and niable pay before everything else calculates.

When NOT to use sacrifice

• Salary close to the Lower Earnings Limit — too much sacrifice can push gross below £125 a week, which breaks eligibility for statutory maternity / sick pay and state pension contributions.
• Active mortgage application — lenders look at gross salary; sacrifice reduces it. Time the start carefully.
• Approaching statutory leave — SMP and SAP are calculated on average post-sacrifice earnings, so sacrifice can reduce statutory pay.
• Near State Pension age — sacrifice reduces NI, which may affect pension entitlement.

Overlap handling

If you add a new arrangement of the same scheme type for someone who already has one active, Blankitt HR automatically closes the previous one the day before the new one starts. You can't accidentally double-deduct.

Different scheme types stack — an employee can have a pension sacrifice and a cycle-to-work sacrifice running at the same time.