How to Calculate Take Home Pay in the UK (2026 Guide)

Gross Pay vs Net Pay Explained

Before diving into calculations, let’s clarify the fundamental difference between gross and net pay. This distinction trips up many people, especially when comparing salaries or negotiating offers.

What is Gross Pay?

Gross pay is your total earnings before any deductions. It’s the figure quoted in job advertisements and employment contracts. When someone says they earn £35,000 per year, they’re referring to gross salary.

Gross pay includes:

• Base salary: Your regular earnings
• Bonuses: Performance or annual bonuses
• Overtime: Additional hours worked (use our overtime calculator)
• Commission: Sales-based earnings
• Allowances: Such as London weighting or shift premiums

What is Net Pay (Take-Home Pay)?

Net pay is what actually lands in your bank account after all mandatory and voluntary deductions. This is your true spending power and the number that matters for budgeting.

The gap between gross and net can be substantial. A £30,000 gross salary typically results in around £24,000 net pay, meaning you lose roughly 20% to deductions. For higher earners, this percentage increases significantly.

Income Tax Calculation 2026

Income Tax is usually the largest deduction from your salary. The UK operates a progressive tax system, meaning different portions of your income are taxed at different rates.

Tax Bands and Rates 2026/27

For the 2026/27 tax year (6 April 2026 to 5 April 2027), the Income Tax bands in England, Wales, and Northern Ireland are:

Band	Taxable Income	Tax Rate
Personal Allowance	Up to £12,570	0%
Basic Rate	£12,571 to £50,270	20%
Higher Rate	£50,271 to £125,140	40%
Additional Rate	Over £125,140	45%

The Personal Allowance is the amount you can earn tax-free each year. Everyone gets this unless you earn over £100,000, at which point it reduces by £1 for every £2 earned above this threshold. It disappears completely once you reach £125,140.

How Income Tax is Calculated

Income Tax is calculated on your taxable income, not your gross income. Here’s the process:

Scottish Tax Rates

If you’re a Scottish taxpayer (indicated by an S at the start of your tax code), different rates and bands apply. Scotland has six tax bands including starter (19%), basic (20%), and intermediate (21%) rates, with the higher rate threshold at £43,662 instead of £50,270.

National Insurance Contributions

National Insurance (NI) is the second major deduction. Unlike Income Tax, it’s not progressive across your entire income. Instead, it uses a two-tier system.

NI Rates 2026/27

Employee National Insurance contributions for 2026/27:

Annual Earnings	Weekly Equivalent	NI Rate
Up to £12,570	Up to £242	0%
£12,570 to £50,270	£242 to £967	8%
Over £50,270	Over £967	2%

Notice the significant drop from 8% to 2% once you earn over £50,270. This means high earners pay proportionally less NI on their higher earnings, unlike Income Tax which increases to 40%.

Key Differences from Income Tax

National Insurance works differently from Income Tax in several ways:

• No carryover: If you don’t earn enough to pay NI in one week or month, you can’t use that threshold in another period
• Age limit: You stop paying employee NI once you reach State Pension age (currently 66), even if you keep working
• No refunds: Unlike tax, you typically can’t reclaim overpaid NI
• Builds entitlement: NI contributions qualify you for certain benefits like State Pension and statutory payments

Workplace Pension Deductions

Since 2012, employers must enroll eligible employees in a workplace pension scheme. Your pension contribution is deducted from your gross pay, which provides valuable tax relief.

Minimum Contribution Rates

For 2026, the minimum combined pension contribution is 8% of qualifying earnings:

• Employer minimum: 3%
• Employee minimum: 5%
• Total: 8% into your pension pot

Qualifying earnings are your salary between £6,240 and £50,270 per year. You don’t pay pension contributions on earnings outside this band (though some schemes use different calculations).

How Pension Deductions Work

Most schemes use “relief at source” or “net pay arrangement” methods:

Relief at Source: You pay your contribution after basic rate tax (20%) is deducted, then the pension provider claims the tax back from HMRC. Higher rate taxpayers claim additional relief through their tax return.

Net Pay Arrangement: Your contribution is taken before tax is calculated, giving immediate tax relief. This is usually better for basic and higher rate taxpayers but can disadvantage low earners below the tax threshold.

Opting Out vs Increasing Contributions

You can opt out of workplace pensions, but this means losing:

• Your employer’s contribution (free money)
• Tax relief on your contributions
• Compound growth over decades

Conversely, increasing your contribution above the minimum can be tax-efficient, especially for higher rate taxpayers who save 40% tax on contributions. Our private pension calculator can help plan for retirement.

Student Loan Repayments

If you have a student loan, repayments are automatically deducted through PAYE based on your earnings. The amount depends on which plan you’re on and how much you earn.

Student Loan Plans and Thresholds 2026/27

Plan Type	Annual Threshold	Repayment Rate
Plan 1 (pre-2012 England/Wales, all Scottish)	£26,900	9%
Plan 2 (post-2012 England/Wales)	£29,385	9%
Plan 4 (Scottish, post-2006)	£31,395	9%
Postgraduate Loan	£21,000	6%

You pay the repayment rate on earnings above the threshold, not on your total income. This makes a significant difference to how much you actually repay.

Multiple Loans

If you have both an undergraduate and postgraduate loan, you’ll repay both simultaneously. The postgraduate loan is calculated separately with its lower threshold (£21,000) and 6% rate.

For someone earning £35,000 with both loans:

• Plan 2 repayment: (£35,000 – £29,385) × 9% = £505.35
• Postgraduate: (£35,000 – £21,000) × 6% = £840
• Total student loan deduction: £1,345.35 per year (£112.11 per month)

Other Common Deductions

Beyond the main deductions, several other items might come off your payslip, reducing your take-home pay further.

Salary Sacrifice Schemes

These schemes reduce your gross salary in exchange for benefits, saving both Income Tax and National Insurance:

• Cycle to Work: Get a bike tax-efficiently (use our savings calculator)
• Electric car schemes: Very low Benefit in Kind rates
• Childcare vouchers: Closed scheme but existing members can continue
• Additional pension contributions: Beyond the minimum

Attachment of Earnings Orders

Court-ordered deductions for debts, child maintenance, or council tax arrears. These are taken after tax and NI but reduce your take-home pay, sometimes significantly.

Union Subscriptions and Professional Fees

Some employers deduct union dues or professional membership fees (like GMC or Law Society fees) directly from salary. You may be able to claim tax relief on professional subscriptions.

Voluntary Deductions

You might have voluntary deductions for:

• Additional pension contributions
• Charitable giving through payroll
• Share save schemes
• Season ticket loans (repayment)

Step-by-Step Take-Home Calculation

Let’s walk through a complete take-home pay calculation from gross salary to net pay, incorporating all typical deductions.

Quick Reference: Take-Home Percentages

Here’s what different earners typically take home as a percentage of gross salary (assuming 5% pension, no student loans):

Gross Salary	Annual Net	Monthly Net	% Take-Home
£20,000	£17,314	£1,443	86.6%
£30,000	£24,114	£2,010	80.4%
£40,000	£30,514	£2,543	76.3%
£50,000	£36,914	£3,076	73.8%
£60,000	£43,114	£3,593	71.9%

Understanding Your Tax Code

Your tax code tells your employer how much tax-free income you get. An incorrect code means wrong deductions and either owing money or getting a refund later.

Common Tax Codes 2026/27

The standard tax code for 2026/27 is 1257L:

• 1257: Your Personal Allowance divided by 10 (£12,570 ÷ 10)
• L: Entitled to standard Personal Allowance

Other common codes:

• BR: Basic Rate (20%) on all income, no allowance (common for second jobs)
• D0: Higher Rate (40%) on all income
• 0T: No allowance, usually temporary
• K codes: Deductions exceed allowances (e.g., K500 means £5,000 deducted from allowance)
• S prefix: Scottish taxpayer (e.g., S1257L)
• W1/M1/X suffix: Emergency codes, non-cumulative

Check your tax code on your payslip or through your personal tax account. If it looks wrong, use our tax code checker to understand what it means and whether you need to contact HMRC.

Comparing Job Offers Effectively

When evaluating job offers, gross salary is only part of the picture. True comparison requires looking at net pay plus benefits, location costs, and work-life balance factors.

Beyond the Salary Number

Consider these factors when comparing offers:

1. True Take-Home Difference

A £5,000 salary increase doesn’t mean £5,000 extra in your pocket. At basic rate, you’d see around £3,000 extra after tax and NI (less if you pay student loans). Use our salary increase calculator to see real impact.

2. Location and Commute Costs

A higher salary in London might leave you worse off after paying for expensive housing and commuting. Our commute cost calculator and cost of living comparison help evaluate the true financial picture.

3. Remote Work Savings

Remote roles save on commuting, lunches, and work clothes. Calculate potential savings with our remote work calculator.

4. Pension Contributions

Some employers offer 8-10% pension contributions instead of the 3% minimum. This is essentially extra income going into your retirement fund with tax benefits.

5. Other Benefits

• Private medical insurance
• Additional holiday days (calculate value here)
• Life insurance
• Bonus potential (check how bonuses are taxed)
• Professional development budget

Use our job offer comparison tool to evaluate multiple offers side-by-side with all factors considered.

Frequently Asked Questions