Buying and Selling Annual Leave UK 2026

A leave purchase scheme is a form of salary sacrifice. The employee agrees to reduce their gross salary by an amount equal to the value of the extra days. The employer adds the equivalent days to the worker's annual leave balance. The reduced gross salary is the basis for tax and National Insurance calculations, producing immediate savings.

The maths is straightforward. A worker on £40,000 with 260 working days per year has a daily rate of £153.85. Buying 5 extra days requires sacrificing 5 × £153.85 = £769.25 of gross salary. The income tax saved at 20% is £153.85; the NI saved at 8% is £61.54. Net cost of 5 extra days: £553.86, or £110.77 per day, against the gross daily rate of £153.85. The worker effectively buys 5 days at 72% of the gross daily cost.

For a higher-rate taxpayer on £60,000, the daily rate is £230.77. Buying 5 days sacrifices £1,153.85 of gross salary. Income tax saved at 40% is £461.54; NI saved at 2% (above the upper earnings limit) is £23.08. Net cost: £669.23, or £133.85 per day. The 5 days cost 58% of the gross daily rate. The economics are more attractive at higher salaries because the marginal tax rate is higher.

Buying leave above the statutory minimum is fully lawful. Selling leave above the statutory minimum is also lawful. But selling the statutory minimum (the 5.6 weeks under the WTR 1998) during employment is unlawful. The statutory minimum can only be paid out as cash on termination of employment under Regulation 14, not during ongoing employment.

Regulation 13(9) of the WTR 1998 states that the 4-week EU-origin leave cannot be replaced by a payment in lieu, except on termination. Regulation 13A applies the same rule to the additional 1.6 weeks of UK leave. Together they protect the 5.6-week floor.

The reason is the rest and recuperation purpose of statutory leave. If workers could sell their statutory leave back, low-paid workers in particular would face pressure to do so for short-term income. The non-replacement rule protects the right to actually rest. Leave above the statutory minimum (contractual additions) can be sold because it is not subject to the same rest protection; the worker still retains the statutory minimum to actually take.

Leave purchase schemes are common in the Civil Service, the NHS, and large private sector employers (Deloitte, PwC, EY, KPMG, the major banks, the largest tech companies, some retailers including John Lewis Partnership and Waitrose). The schemes are typically administered through HR portals with an annual enrolment window (usually March-April for an April-March leave year, or November-December for a January-December leave year).

Smaller employers (under 50 staff) less commonly offer formal schemes. Where a smaller employer wants to enable leave purchase, it can be arranged on an individual basis through a written agreement varying the contract for the year. The same tax and NI savings apply provided the arrangement meets the salary sacrifice rules in GOV.UK guidance on salary sacrifice arrangements.

Sell schemes are less common than buy schemes. The Civil Service offers leave sale (up to 5 days) in most departments. Large private firms offer sell schemes less frequently because the operational benefit is unclear; the employer pays out cash for leave that would have been taken anyway. Sell schemes are most common where the employer is concerned about workers carrying over large balances that create a financial liability on the balance sheet.

The headline tax savings come from the lower gross salary used for PAYE income tax and Class 1 employee National Insurance. Pension contributions calculated on the pre-sacrifice salary may also reduce (some employer pension schemes are on a notional salary base, others on actual salary). Student loan repayments are calculated on the lower salary, so they reduce too.

The employer also saves Class 1 employer National Insurance on the sacrificed amount (currently 15% from April 2025 onwards per the latest changes). Many employers pass some or all of this saving back to the employee as additional days, making the scheme more generous. A typical structure: 1 day sacrificed gives the employee 1 day of leave plus 0.15 day extra funded by the employer NI saving.

Salary sacrifice arrangements are reportable to HMRC under the Employer NI return. They must be formal, in writing, and irrevocable within the scheme year. A salary sacrifice arrangement that can be reversed mid-year is at risk of HMRC challenge. The standard structure (enrol once per year, locked for the year) is well-established and safe.

Salary sacrifice schemes affect the calculation of benefits linked to gross pay. Mortgage applications generally use the pre-sacrifice salary, so the worker's borrowing capacity is unaffected. Pension contributions may reduce in line with the sacrifice; some employers compensate by paying employer contributions on the pre-sacrifice salary. Maternity Pay, Statutory Sick Pay, and Statutory Adoption Pay are calculated on the post-sacrifice salary, so a worker who is about to take family leave should consider pausing the salary sacrifice.

Personal Allowance for income tax (£12,570 in 2025/26) cannot be eroded below zero. A low-paid worker close to the Personal Allowance threshold may find that the salary sacrifice produces no income tax saving because they are already not paying tax. National Insurance savings still apply provided the post-sacrifice salary is above the NI threshold.

Universal Credit and other means-tested benefits use the actual salary received, so a worker on UC who sacrifices salary for leave may see their UC entitlement adjust. The interaction can be complex and not always favourable. Workers receiving means-tested benefits should check the interaction with a benefits adviser before enrolling in a leave purchase scheme.