See what sacrificing salary into a pension saves, for you and your employer, and what the April 2029 cap will change. A working figure, not advice — talk to Buzz about your payroll.
Salary sacrifice reduces your gross pay, and gross pay matters elsewhere.
Mortgage affordability, statutory maternity pay and some benefits are worked out from gross salary, and sacrifice cannot take pay below the National Minimum Wage. This tool covers pension sacrifice for an employee on England and Northern Ireland rates. Talk to Buzz before setting a scheme up.
Your figures
Enter your salary and the amount sacrificed, then click Calculate.
The basics
How salary sacrifice works
Salary sacrifice swaps part of your gross pay for an employer pension contribution. Because the money never counts as salary, neither you nor your employer pays National Insurance on it, and income tax relief comes automatically at your marginal rate rather than being claimed back.
Employers save too. The employer saves secondary National Insurance at 15% on everything sacrificed. Some keep that saving; better schemes add it to the employee's pension, which costs the employer nothing and is worth real money over a career. It is always worth asking which yours does.
The change coming in April 2029. At Budget 2025 the government announced that from 6 April 2029, only the first £2,000 of employee pension contributions made through salary sacrifice each year will keep the National Insurance exemption. Above that, both employer and employee National Insurance will apply as with any other workplace pension contribution. Income tax relief is unaffected.
It does not arrive until 2029 — but if you are designing a scheme now, it belongs in the modelling.
What it can cost you. Sacrifice reduces gross salary, and gross salary is what mortgage lenders assess and what statutory maternity pay is based on. It also cannot take pay below the National Minimum Wage, which rules it out for lower-paid staff.
Frequently asked questions
Common VAT questions
How do I remove VAT from a price?
Divide the gross figure by 1.20 for standard-rate VAT. £120 ÷ 1.20 = £100 net, so the VAT is £20. Taking 20% off £120 gives £96, which is wrong, and it is the most common VAT mistake in small business bookkeeping — it understates net sales and overstates the VAT by a few percent every time. For the reduced 5% rate, divide by 1.05. A useful shortcut for standard rate: the VAT in a gross figure is one sixth of it.
When do I have to register for VAT?
When your VAT-taxable turnover exceeds £90,000 in any rolling twelve-month period, or when you expect to exceed it within the next thirty days alone. The rolling test is the one that catches people: it is not your accounting year and not the calendar year, so you have to check it monthly. Registering late means HMRC can charge you the VAT you should have collected from the date you crossed the threshold — money you never took from your customers and generally cannot go back and ask for. Watch it every month.
Should I register voluntarily?
It depends entirely on who your customers are. If they are mainly VAT-registered businesses, they reclaim the VAT anyway, so registering costs them nothing and lets you recover VAT on your own purchases and overheads — often worth several thousand pounds a year. If you sell to consumers or small unregistered businesses, registration effectively makes you 20% more expensive or cuts your margin by that much, and it is usually a poor idea. There is also the admin: quarterly returns, digital records and MTD obligations from day one.
What is the Flat Rate Scheme, and is it worth it?
A simplified scheme for businesses with turnover up to £150,000 excluding VAT, where you pay HMRC a fixed percentage of your gross turnover instead of tracking VAT on every purchase, and generally cannot reclaim input VAT except on capital assets over £2,000. It suits low-cost service businesses and penalises anyone who buys a lot. The limited cost trader rule pushes businesses spending little on goods onto a 16.5% rate, which removes most of the benefit. Run it both ways on your actual figures before joining — it is not a one-way saving.
Do I charge VAT to overseas customers?
It depends on what you sell, whether it is goods or services, whether the customer is a business or a consumer, and where they are. The general rule for business-to-business services is that the place of supply is where the customer belongs, so UK VAT is not charged and the reverse charge applies — but there are numerous exceptions, and digital services to consumers follow different rules again. Goods bring customs and, for Northern Ireland, the Windsor Framework. Getting it wrong is expensive to unwind, so check before assuming.
What happens if I get a VAT return wrong?
Correct it. Errors below the reporting threshold and not deliberate can usually be adjusted on your next return; larger or deliberate errors must be notified to HMRC separately on form VAT652. Unprompted disclosure attracts substantially lower penalties than an error HMRC finds itself, so the incentive is firmly on telling them first. Late returns and payments now work on a points-based system with separate late payment penalties and interest. The practical lesson is that a VAT mistake found and reported is a small problem, and the same mistake discovered in an inspection is not.
More tools
Other Buzz calculators
Self-employed tax
Estimate Income Tax and NI on your self-employed profit.
Start with a single sale. You quote £1,000 for a job, exclusive of VAT.
Net price£1,000
VAT at 20% — £1,000 × 0.20£200
Gross invoice£1,200
Reverse it and the trap appears. If a customer agrees £1,200 including VAT, the net is £1,200 ÷ 1.20 = £1,000 and the VAT is £200. Taking 20% off £1,200 gives £960, which is £40 wrong on every invoice.
Now scale it to a quarter. A business invoices £42,000 net over three months and spends £12,900 including VAT on standard-rated costs.
Output VAT on sales — £42,000 × 20%£8,400
Input VAT on purchases — £12,900 ÷ 6−£2,150
Payable to HMRC£6,250
Dividing a VAT-inclusive figure by 6 is the quick way to find the VAT inside it at 20%, which is worth remembering when you are checking a supplier invoice.
What to do with the answer
The VAT money is never yours
Move it out of the current account. £6,250 sitting in the bank looks like profit for eleven weeks and then is not. A separate account solves the single most common cause of a VAT arrears problem.
Know your deadline. Under the standard quarterly cycle, the return and the payment are both due one month and seven days after the quarter ends.
Check you are on the right scheme. Cash accounting means you account for VAT when you are paid rather than when you invoice, which helps if customers are slow. The Flat Rate Scheme suits some businesses and costs others money. Neither is reflected in this calculator.
If you are approaching £90,000, plan the date. Registration is triggered by a rolling twelve-month total, not your financial year, so it can arrive unexpectedly. Voluntary registration can be worth it if your customers are VAT-registered businesses — and a bad idea if they are consumers.
Late VAT returns now attract points rather than an automatic penalty, but the points accumulate and turn into a fine, and late payment carries interest separately. Our article on the real cost of late VAT returns covers how that works.
