The £2,000 cap on salary sacrifice from April 2029

The National Insurance Contributions (Employer Pensions Contributions) Act 2026 received Royal Assent on 29 April 2026. From the 2029/30 tax year the National Insurance exemption on salary-sacrificed pension contributions is capped at £2,000 a year. Above that, the sacrificed amount is treated for National Insurance like any other employee pension contribution, and both primary and secondary Class 1 contributions apply.

3.3 million

employees sacrifice more than £2,000 a year and fall inside the new charge

HMRC tax information and impact note

9 min read · Altro Partners, by Equity & General

A salary sacrifice arrangement is drafted once and then runs through the payroll. Where an accountancy firm drafted the variation letters and runs the payroll, the firm holds the record of who is affected.

What the Act does

The measure is narrow:

It takes effect for the tax year 2029/30 and later years. The Act came into force on the day it was passed, and the amendments apply 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 unchanged. Contributions above the limit still go into the pension free of income tax, subject to the usual allowances.
Employer contributions outside salary sacrifice are unchanged. HMRC’s tax information and impact note states that National Insurance relief on employer pension contributions made outside a salary sacrifice arrangement remains as it is.
Employees and employers can still sacrifice above £2,000. The excess is brought into charge.

HMRC’s figures

HMRC’s tax information and impact note gives the scale. Around 7.7 million employees use salary sacrifice for pension contributions. Of those, 3.3 million sacrifice more than £2,000 a year and fall inside the new charge, and about 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.

7.7 million

employees use salary sacrifice for pension contributions

3.3 million

sacrifice more than £2,000 a year and fall inside the new charge

4.3 million

sit under the limit and are unaffected

£84

the average additional employee National Insurance liability for an affected individual in 2029/30

HMRC tax information and impact note

The Exchequer figures run the other way: a cost of £40 million in 2026/27, £55 million in 2027/28 and £75 million in 2028/29 while employers restructure ahead of the change, then a yield of £4,845 million in 2029/30 and £2,585 million in 2030/31. A first-year yield falling by nearly half in year two is HMRC’s own expectation that employers will restructure.

The £84 average covers 3.3 million people, and it says nothing about the employee who sacrifices £8,000 or £10,000 a year, or about the employer’s side of the bill.

A worked example

This example uses a made-up company and made-up figures. 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% (GOV.UK, Rates and thresholds for employers 2026 to 2027).

Today the 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 for the employee and £300 for the employer, which is the most the exemption can be worth to anyone at those rates.

One employee, sacrificing £6,000 a year

Made-up figures, at the 2026/27 rates

Saving today, employee£480

Saving today, employer£900

Extra from 6 April 2029, employee£320

Extra from 6 April 2029, employer£600

Residual saving, employee£160

Residual saving, employer£300

If six people in that company are in a comparable position, the employer’s payroll cost rises by about £3,600 a year, and six employees see their take-home pay fall unless the arrangement is redesigned.

HMRC tax information and impact note: 3.3 million employees sacrifice more than £2,000 a year and fall inside the new charge, with an average additional employee National Insurance liability of £84 in 2029/30.

Why the accountant sees it first

The payroll holds the data

Identifying who is affected requires each employee’s annual sacrificed amount. The pension provider sees contributions and not the contractual arrangement behind them. The client sees a total. The payroll shows who crosses £2,000 and by how much, and where the accountant runs the payroll, the accountant holds that record.

The firm drafted the arrangement

Salary sacrifice is a variation of the employment contract. Undoing or restructuring it is a documentation exercise, and the documentation is in the firm’s file.

Most of the workforce has no financial planner

The FCA’s Financial Lives 2024 survey found that 8.6% of UK adults had taken regulated financial advice in the previous twelve months, and 13% of the self-employed. A 41-year-old operations manager on £48,000 with a workplace pension is on a payroll your firm processes twelve times a year. The figures on who takes advice are on the advice gap, and the division of roles in who does what.

The employer’s options

Each affected employer has a choice. 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, subject to the wholly and exclusively test (HMRC Business Income Manual BIM46035). It can rebase salaries. Or it can share the change with employees.

Each option does something different to the individual.

Restoring contractual salary raises the figure a mortgage lender sees, the base for statutory payments and the multiple used for death-in-service cover, while changing what reaches the pension. Leaving contractual salary low and funding by employer contribution does the reverse. A payroll bureau cannot settle that alone. The same applies to a company’s idle cash, covered in the cash question.

Two things to do 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 query gives each client the cost of doing nothing, in pounds, three years before it arrives.
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”. The other things to record are in what to look for in the accounts.

Neither is regulated advice, and neither requires FCA permission. Both are arithmetic your firm can do from the payroll it already runs.

An accountant working through a payroll at her desk

Common questions

Does salary sacrifice stop being useful?

No. Income tax relief on pension contributions is unchanged, and HMRC’s impact note says so. 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% (GOV.UK, Rates and thresholds for employers 2026 to 2027). From 6 April 2029 the amount above £2,000 carries primary and secondary Class 1 contributions like any other employee pension contribution. For contributions above £2,000 it may no longer be the cheapest route, so the arrangement needs reviewing.

Are our owner-manager clients affected?

Some are not. A director-shareholder on a small salary topped up with dividends, whose pension is funded by a contribution paid directly by the company, sits outside this measure, because 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 more than £2,000 of it, and the employees on their payroll. The payroll report above shows which clients sit in each group.

Can the company pay the contribution directly instead?

Yes, and that contribution keeps its National Insurance relief. HMRC’s impact note confirms that National Insurance relief on employer pension contributions made outside salary sacrifice is unchanged. Getting from one to the other takes work. 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 changes 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, which is why the accountant and the Equity & General financial planner look at it together.

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. 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 accountancy work, and none of it needs FCA authorisation. Advising an individual on what to do about their own pension, how much to fund, which scheme, and what the trade-off against take-home pay is worth to them, is regulated advice and sits with the Equity & General financial planner. In an Altro partnership the accountant supplies the figures and the timing, Equity & General makes the recommendation and carries the responsibility, and the firm carries on with the accounts and tax work.

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; FCA, Financial Lives 2024. Figures are illustrative and not a recommendation. See how an Altro introduction works.

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