Somewhere in your practice there is a folder of salary sacrifice paperwork. Your firm probably drafted the variation letters, told the client what it would save them in employer National Insurance, and has been running the deductions through the payroll ever since without anyone mentioning it again. It is one of the quietest pieces of work an accountancy firm does, because once it is set up it simply runs.
It now has a date on it. The National Insurance Contributions (Employer Pensions Contributions) Act 2026 received Royal Assent on 29 April 2026, and from the 2029-30 tax year the National Insurance exemption on salary-sacrificed pension contributions is capped at £2,000 a year. Above that line, the sacrificed amount is treated for National Insurance purposes like any other employee pension contribution, and both primary and secondary Class 1 contributions apply.
Three years is a long runway. It is also exactly the length of time that turns a change into something nobody does anything about until the quarter it lands.
What the Act actually does
The measure is narrower than the headlines suggested, and the boundaries matter more than the number:
- It takes effect for the tax year 2029-30 and subsequent tax years — the Act itself came into force on the day it was passed, but the amendments bite from 6 April 2029.
- The limit is £2,000 for a tax year. The Act requires the first regulations to specify that figure, with a power to modify it later; any reduction below £2,000 requires the approval of Parliament.
- Income tax relief is untouched. Contributions above the limit still go into the pension free of income tax, subject to the usual allowances.
- Employer contributions outside salary sacrifice are untouched. HMRC's impact note is explicit that National Insurance relief on traditional, non-salary-sacrifice employer pension contributions remains unchanged.
- Employees and employers can still sacrifice above £2,000. Nothing is prohibited. The excess is simply brought into charge.
So this is not the end of salary sacrifice. It is the end of salary sacrifice as a decision nobody needs to revisit.
The numbers HMRC published
The tax information and impact note for the measure gives the scale, and it is worth quoting rather than paraphrasing. Around 7.7 million employees currently use salary sacrifice for pension contributions. Of those, 3.3 million sacrifice more than £2,000 a year and fall inside the new charge; roughly 4.3 million sit under the limit and are unaffected. HMRC estimates the average additional employee National Insurance liability for an affected individual at £84 in 2029-30.
The Exchequer numbers run the other way and are much larger: a cost of £40 million in 2026-27, £55 million in 2027-28 and £75 million in 2028-29 while employers restructure ahead of it, then a yield of £4,845 million in 2029-30 and £2,585 million in 2030-31. The shape of that profile — a large first-year yield falling by nearly half in year two — is the Treasury's own expectation that behaviour will change. Somebody is going to do that restructuring for the country's small employers, and in most cases the only professional in the room is their accountant.
The £84 average is the figure most likely to be misread. It is an average across 3.3 million people, most of whom sacrifice only a little over the limit. It says almost nothing about the client who sacrifices £8,000 or £10,000 a year, and nothing at all about the employer's side of the bill, which is the larger half.
Putting real numbers on it
Take a composite, illustrative case — not a real client. A trading company with 18 employees operates a salary sacrifice arrangement set up in 2021. One of them, a senior manager, is on a headline salary of £48,000 and sacrifices £6,000 a year, so contractual pay is £42,000. The whole of the sacrificed band sits between the primary threshold of £12,570 and the upper earnings limit of £50,270, so at the 2026-27 rates the employee saves Class 1 primary contributions at 8% and the employer saves secondary contributions at 15%.
Today that arrangement saves the employee £480 and the employer £900. From 6 April 2029 the first £2,000 keeps its exemption and the remaining £4,000 comes into charge, so the employee pays an extra £320 and the employer an extra £600. The residual saving is £160 and £300 respectively — which is the arithmetic ceiling for anyone, because 8% and 15% of £2,000 are the most the exemption can now be worth.
If six people in that company are in a comparable position, the employer's payroll cost rises by roughly £3,600 a year, and six employees see their take-home pay fall unless something is redesigned. Neither of those is a large number on its own. Both are the kind of number that produces a difficult conversation if the first anyone hears of it is the April 2029 payroll run.
The employer contribution route keeps its relief in full. Getting there means varying eighteen contracts and changing what eighteen people take home. That is not a payroll job with a planning footnote — it is a planning job with a payroll footnote.
Why this one lands on the accountant first
Three reasons, and they are all structural rather than commercial.
You hold the data nobody else has. Identifying who is affected requires knowing each employee's annual sacrificed amount. The pension provider sees contributions but not the contractual arrangement behind them. The client sees a total. Only the payroll knows who crosses £2,000 and by how much, and in most owner-managed businesses the payroll is run by the accountant.
You wrote the arrangement. Salary sacrifice is a variation of the employment contract, not a payroll setting. Undoing or restructuring it is a documentation exercise, and the documentation is generally in your file.
Nobody is advising the workforce. This is the part that connects a payroll change to the advice gap. The lang cat's State of Advice Report 2025 found that just 9% of UK adults had paid for financial advice in the preceding two years, delivered by fewer than 5,000 IFA firms, with the average new advised client arriving with a portfolio of around £411,000 and the average IFA client aged 59. A 41-year-old operations manager on £48,000 with a workplace pension is not in that market's line of sight and never has been. They are, however, on a payroll your firm processes twelve times a year. We have written about the general shape of that mismatch in the advice gap, and about the division of labour it implies in accountant and financial planner: who does what.
The design question the three years are for
The choice in front of every affected employer is a genuine one, and it is not a tax trick. The company can leave the arrangement alone and absorb the additional secondary contributions. It can restructure so that funding above £2,000 comes through a direct employer contribution, which keeps its National Insurance relief and its corporation tax deduction. It can rebase salaries. Or it can share the change with employees rather than carry it.
Each of those does something different to the individual. Restoring contractual salary raises the figure a mortgage lender sees, the base for statutory payments and often the multiple used for death-in-service cover, while changing what actually reaches the pension. Leaving contractual salary low and funding by employer contribution does the reverse. Neither is right in the abstract, which is exactly why this is not a question a payroll bureau can settle on its own — and why the same logic that applies to a company's idle cash, which we covered in the cash question, applies here too. Money that has not had a decision taken about it usually gets one taken for it.
Two things worth doing this week
Run one payroll report. Across the payrolls your firm processes, list every employee whose annual salary-sacrificed pension contribution exceeds £2,000, with the sacrificed amount and the employer's secondary contributions rate applied to the excess. That single query gives each client the cost of doing nothing, expressed in pounds, three years before it arrives. Most firms can produce it from their payroll software in an afternoon, and no client has ever been unhappy to be told a number early.
Add a line to the next year-end agenda. Where a client operates salary sacrifice, note the date the arrangement was set up, the number of employees above the limit, and whether the client has decided who carries the change. Record the answer even where it is "not yet". A recorded question has a way of becoming a conversation, which is the whole argument of the six signals already sitting in your client file.
Neither of these is regulated advice, and neither requires any FCA permission. They are two pieces of arithmetic that your firm can do and nobody else can — and they arrive in front of the client three years before the alternative, which is a payroll report in April 2029 that nobody was expecting.
Common questions
Does this mean salary sacrifice stops being worth doing?
No. Two of the three benefits are untouched. Income tax relief on pension contributions is unchanged, and HMRC's impact note says so directly. The first £2,000 sacrificed each tax year keeps its full National Insurance exemption, which is worth £160 to a basic-rate employee and £300 to the employer at the 2026-27 rates of 8% and 15%. What changes is the marginal pound above £2,000: from 6 April 2029 it carries primary and secondary Class 1 contributions like any other employee pension contribution. The arrangement still works. It simply stops being the automatically cheapest route for the larger contributions, which is a design question rather than a reason to unwind anything.
Are our owner-manager clients affected at all?
Many will not be. A director-shareholder on a small salary topped up with dividends, whose pension is funded by a contribution paid directly by the company, sits entirely outside this measure — employer contributions made outside a salary sacrifice arrangement keep their National Insurance relief in full. The clients who are caught are the ones drawing a substantial salary through PAYE and sacrificing a meaningful slice of it, and the workforce behind them. That second group is the larger one, and it is the group nobody in the business is looking after. It is worth knowing which of your clients sit in each camp before 2029 rather than after.
Can the company simply pay the contribution directly instead?
The relief is there. HMRC's impact note confirms that National Insurance relief on traditional, non-salary-sacrifice employer pension contributions is unchanged. What is not simple is getting from one to the other. A salary sacrifice arrangement is a contractual variation of pay, so replacing it means varying contracts again, rewriting scheme documentation, and deciding who keeps the saving. It also alters each employee's contractual salary, which feeds mortgage affordability, statutory pay, death-in-service multiples and borrowing. That is a payroll and employment question with a personal financial consequence attached to it, which is precisely the sort of decision that benefits from both professions being in the room.
Could the £2,000 figure change before 2029?
It can, and the Act says how. The National Insurance Contributions (Employer Pensions Contributions) Act 2026 requires the first regulations to set the contributions limit at £2,000 for a tax year, and gives a power to modify that figure by later regulations. Any reduction below £2,000 requires the approval of Parliament. During the Bill's passage the House of Lords voted to raise the cap to £5,000 and the Commons rejected the amendment, so £2,000 is the settled starting point rather than an opening bid. The operational detail — how the limit is measured across pay periods and part-years — comes through secondary legislation after HMRC's engagement with employers.
Where does our firm's role stop and regulated advice begin?
Running the payroll, operating the arrangement and quantifying the additional National Insurance are all accountancy work, and none of it needs FCA authorisation. The line is crossed when someone advises an individual on what to do about their own pension — how much to fund, which scheme, what the trade-off against take-home pay is worth to them. That is regulated advice and it sits with a firm authorised by the Financial Conduct Authority. In an Altro partnership the accountant supplies the figures and the timing, Equity & General carries the recommendation and the responsibility, and the client gets one answer instead of two half-answers.
Sources: National Insurance Contributions (Employer Pensions Contributions) Act 2026 (c. 15), Royal Assent 29 April 2026; HMRC, Salary sacrifice reform for pension contributions effective from 6 April 2029 (tax information and impact note); HMRC, Rates and thresholds for employers 2026 to 2027; The lang cat, State of Advice Report 2025. Figures are illustrative and not a recommendation. See how an Altro introduction works.