Should I Consider A Salary Sacrifice?

If you are on the fence between considering whether or not to go with a salary sacrifice car scheme, you might want to consider the below points when factoring in your decision.

When to Consider a Salary Sacrifice

1. High Tax Bracket

If you are in a higher tax bracket, salary sacrifice can be particularly beneficial. By reducing your gross salary, you lower the amount of income that is subject to higher tax rates. This can result in significant tax savings, making the benefits more cost-effective.

2. Long-Term Financial Planning

If you are focused on long-term financial planning, salary sacrifice can be a strategic tool. For example, increasing pension contributions through salary sacrifice can boost your retirement savings while also providing immediate tax benefits.

  • Pension Contributions: For those aiming to build a substantial pension pot, sacrificing part of the salary for enhanced pension contributions can be advantageous. This is especially true if your employer matches or exceeds contributions.

3. Utilising Specific Benefits

Consider salary sacrifice if the specific benefits offered align with your personal or family needs:

  • Childcare Vouchers: If you have young children and high childcare costs, salary sacrifice for childcare vouchers can provide significant savings.
  • Electric Car Leasing: If you want to drive an environmentally friendly car, salary sacrifice can make leasing an electric vehicle more affordable due to tax savings and lower running costs.

4. Stable Financial Situation

You should consider salary sacrifice if you have a stable financial situation and can afford a reduction in your gross salary. This means having enough disposable income to cover essential living expenses and being comfortable with your monthly budget after the salary sacrifice.

5. Understanding the Commitment

If you fully understand the commitment involved and are comfortable with the terms, salary sacrifice can be beneficial. This includes being aware of the duration of the agreement, early termination clauses, and how it might affect your net pay and benefits.

When Not to Consider a Salary Sacrifice

1. Potential Impact on Mortgage or Loan Applications

If you are planning to apply for a mortgage or significant loan soon, salary sacrifice might not be ideal. Lenders typically assess loan eligibility based on gross income, and a reduced gross salary might affect your ability to borrow.

2. Need for Flexibility

If you anticipate needing flexibility with your finances, salary sacrifice might not be suitable. The agreements are usually long-term and binding, and exiting the scheme early can result in penalties.

3. Low Income

If your income is relatively low, salary sacrifice might not be beneficial. Reducing your gross salary could push your income below thresholds for important benefits or tax credits. It's essential to ensure that the reduction in gross salary doesn’t adversely affect your eligibility for these benefits.

4. Impact on Statutory Benefits

Consider how salary sacrifice might impact your entitlement to statutory benefits like maternity pay, sick pay, and redundancy pay. If these benefits are based on gross salary, a reduced salary could mean lower benefit payments when you need them.

Steps to Take Before Deciding

  1. Calculate the Impact: Use online calculators or consult with a financial advisor to understand the exact impact on your net pay and overall financial situation.
  2. Review Employer’s Offerings: Ensure that the benefits available through your employer’s salary sacrifice scheme align with your needs.
  3. Understand the Terms: Read all the terms and conditions, especially regarding the duration of the agreement and early termination penalties.
  4. Consider Long-Term Goals: Align the decision with your long-term financial and personal goals, ensuring that the benefits will genuinely enhance your financial situation and quality of life.


Salary sacrifice can be a powerful tool for maximising benefits and reducing tax liabilities, but it’s not a one-size-fits-all solution. It's best suited for those in higher tax brackets, stable financial situations, and with specific benefit needs. However, it's crucial to consider potential downsides, such as the impact on gross income, statutory benefits, and financial flexibility. By carefully evaluating these factors and consulting with financial advisors, individuals can make informed decisions about whether salary sacrifice is the right choice for them.