How does Salary Exchange benefit me?

An overview of the primary benefits (increased take home pay / pension contributions) and secondary benefits (working & child tax credits)

Rachele Carraro avatar
Written by Rachele Carraro
Updated over a week ago


Salary exchange is an arrangement between you and your employer in which you agree to exchange part of your salary or bonus, and in return, you receive a non-cash benefit of similar value.

Examples of Tax Efficient Salary Exchange benefits

  • Childcare vouchers

  • Cycle to Work schemes

  • Ultra-low emission cars

  • Pensions (Including advice).

Primary benefits

By exchanging part of your salary, your overall gross pay is lower, so you pay less tax and National Insurance.

  • Your earnings that would be taxed can be exchanged into non-cash benefits that are not taxed.

  • As a result of this, while your gross pay will be lower your take-home pay actually increases. See below.

How much tax and NIC do I save?

You can save NIC of 12% of the amount exchanged on earnings above the primary threshold (£12,570 for the tax year 2022/23).

However, for any earnings above the upper earnings limit (£50,270 for the tax year 2022/23) your NIC saving will be 2%.

Secondary benefits

Working & child tax benefits

The level of any Tax Credits you may be entitled to is based on a number of factors including taxable earnings (gross pay). As Salary Exchange reduces taxable earnings it may affect the amount of Tax Credits you are entitled to. That is, the Tax Credits you are entitled to may go up, providing a direct benefit of using Salary Exchange

Did this answer your question?