UK Salary Take-Home: How to Calculate Net Pay

UK take-home pay is the figure that actually reaches a bank account after a salary passes through payroll. Each deduction follows its own rules: income tax through PAYE bands, National Insurance through separate thresholds, pension via auto-enrolment, student loan via income-contingent percentages, and others (private health, gym, season-ticket loans) through arrangements with the employer.

This guide walks through each deduction, the formula behind it, the order in which payroll software applies them, and three worked examples at different salary levels. Figures are for 2026/27 unless otherwise stated.

The four core deductions

Every payslip has at least three of four deductions: income tax, National Insurance, pension (where opted in), and student loan (where applicable). Some payslips also show salary sacrifice as a reduction in gross pay rather than a separate deduction line. The order matters because each deduction may use a different base figure.

Salary sacrifice (cycle to work, pension, electric vehicle, childcare voucher legacy) is applied first, reducing the gross pay before any other calculation. The sacrificed amount avoids both income tax and NI. The post-sacrifice gross becomes the base for PAYE and NI calculations.

Income tax is calculated using the cumulative band method against the tax code allowance and band capacity. National Insurance is calculated separately on a non-cumulative monthly or weekly basis. Student loan and postgraduate loan deductions are calculated on the non-cumulative gross above the relevant threshold. Auto-enrolment pension is typically calculated on qualifying earnings between GBP 6,240 and GBP 50,270, though the basis varies by scheme.

Worked example: a GBP 40,000 employee with a 5% pension contribution to a relief-at-source scheme has gross pay of GBP 40,000, pension contribution of GBP 1,667 (after 25% basic-rate uplift on the GBP 1,333 cash deduction), income tax on the full GBP 40,000 minus PA = GBP 5,486, NI on the same = GBP 2,194, totalling deductions of GBP 9,013 (including the GBP 1,333 cash pension contribution). Take-home GBP 30,987 a year.

Income tax through PAYE: the cumulative method

PAYE uses the cumulative method by default. Each pay period the employer calculates year-to-date allowance and band capacity (proportional to months elapsed), compares to year-to-date taxable pay, and deducts the amount needed to bring year-to-date tax deductions to the correct cumulative level. This produces small variations month to month but the correct annual total.

The standard 1257L code gives GBP 1,047.50 of allowance per month, GBP 3,141.67 of basic-rate band capacity, and GBP 6,239.17 of higher-rate capacity (one-twelfth of the annual figures). A month's tax is the year-to-date tax due less tax already deducted in earlier months of the same tax year.

An emergency code ending in W1 (week one) or M1 (month one) applies each pay period independently. The allowance and band capacity are applied to that month's pay only, with no reference to year-to-date totals. Emergency codes typically over-tax in early periods and under-tax later, with the imbalance corrected once a cumulative code is issued.

Worked example: a new starter in October on GBP 36,000 (GBP 3,000 a month) with no prior PAYE income would normally be placed on a cumulative 1257L. October's pay would have GBP 7,332.50 of cumulative allowance available against GBP 3,000 of cumulative pay - so no tax due in October. The same starter on emergency 1257L M1 would have only GBP 1,047.50 of allowance applied to October's GBP 3,000, taxable at GBP 1,952.50 * 20% = GBP 390.50.

National Insurance: separate thresholds, non-cumulative

National Insurance for employees uses Class 1 contributions under the Social Security Contributions and Benefits Act 1992. For 2026/27 (broadly continuing the 2024/25 structure post-rate-cut): 8% on weekly earnings between GBP 242 and GBP 967 (annual GBP 12,570 to GBP 50,270), 2% above. The thresholds are weekly for weekly-paid employees and monthly equivalents for monthly-paid (GBP 1,048 and GBP 4,189 respectively).

NI is non-cumulative: each pay period stands alone for calculation. A bonus month that pushes pay over the Upper Earnings Limit attracts 2% on the slice above; the 8% rate is not retroactively recalculated against year-to-date pay. This is why some employees see disproportionate NI on bonus months compared with the same total spread evenly.

Class 1A NI on benefits in kind is paid by the employer, not the employee. Class 1B NI on PAYE Settlement Agreements is also an employer charge. Employees see only Class 1 main NI on cash salary, with the rare exception of director-only NI rules where the annual basis applies retroactively at year-end.

Worked example: a GBP 55,000 employee paid in equal monthly amounts of GBP 4,583. Monthly NI: GBP 4,583 less GBP 1,048 (PT) = GBP 3,535 of which GBP 3,141 at 8% (GBP 251.32) and GBP 394 at 2% (GBP 7.88). Total monthly NI GBP 259.20. Annual total GBP 3,110.

Student loan and postgraduate loan deductions

Student loan repayments are deducted through PAYE on income above the relevant plan threshold. Plan 1 (pre-2012 starters in England and Wales, Northern Ireland) repays at 9% above GBP 26,065 a year (2025/26). Plan 2 (post-2012 starters in England and Wales) repays at 9% above GBP 28,470. Plan 4 (Scotland) repays at 9% above GBP 32,745. Plan 5 (post-August 2023 starters in England) repays at 9% above GBP 25,000 with a 40-year write-off horizon.

Postgraduate loans repay at 6% above GBP 21,000 a year, calculated separately from undergraduate plans. A borrower with both a Plan 2 and a Postgraduate loan repays 9% above GBP 28,470 and 6% above GBP 21,000 concurrently, with combined deductions of up to 15% in the overlap region.

Deductions are non-cumulative: each pay period the employer deducts 9% (or 6%) on the portion of pay above the proportional threshold for that period. A bonus month produces higher deductions in that month with no later reconciliation. The Student Loans Company collects the deductions through HMRC and applies them to the loan balance.

Worked example: a GBP 35,000 Plan 2 graduate. Monthly pay GBP 2,917, monthly threshold GBP 2,372.50 (1/12 of GBP 28,470). Repayment 9% of GBP 544.50 = GBP 49 a month, GBP 588 a year. The same graduate with a postgraduate loan adds 6% of GBP 1,167 (GBP 2,917 less GBP 1,750 monthly threshold) = GBP 70 a month, for combined deductions of GBP 119 a month, GBP 1,428 a year.

Auto-enrolment pension contributions

Auto-enrolment under the Pensions Act 2008 requires most UK employers to enrol eligible jobholders into a qualifying pension scheme. The total minimum contribution is 8% of qualifying earnings, with the employer contributing at least 3% and the employee at least 5% (the GBP 5% can be made up of 4% cash and 1% tax relief in relief-at-source schemes, or 5% cash in net-pay schemes).

Qualifying earnings are the slice between the Lower Earnings Limit (GBP 6,240) and the Upper Earnings Limit (GBP 50,270) for 2025/26 and broadly 2026/27. Some schemes use different bases (basic pay, gross pay, total earnings) under certification rules. The choice matters because the contribution base differs.

Net pay arrangement schemes deduct the full employee contribution from gross pay before income tax, giving immediate relief at the employee's marginal rate. Relief-at-source schemes deduct from net pay; the scheme then claims basic-rate tax back from HMRC and adds it to the contribution. Higher-rate and additional-rate taxpayers must claim the extra relief through SA or PTA in relief-at-source schemes.

Worked example: a GBP 30,000 employee in a relief-at-source scheme. Qualifying earnings GBP 23,760 (GBP 30,000 less GBP 6,240). Employee contribution 4% of qualifying earnings = GBP 950 cash; with 25% basic-rate uplift the gross pension contribution is GBP 1,188. Employer 3% adds GBP 713. Total pension flow GBP 1,901 a year, of which only GBP 950 reduces take-home pay.

Salary sacrifice: how it changes the maths

Salary sacrifice is a contractual reduction in gross salary in exchange for a non-cash benefit, typically employer pension contribution, cycle-to-work bike, electric vehicle lease, or ultra-low emission vehicle. The sacrificed amount removes from the top of pay - so the highest-rate income tax and NI are saved - and the benefit is delivered free of income tax and NI where the sacrifice meets HMRC rules in EIM42700 onwards.

From the employee's perspective the post-sacrifice gross is the new salary for PAYE, NI, pension auto-enrolment (where basis includes salary), and any other percentage-based calculations. Some employee-side calculations (such as mortgage affordability or maternity pay) may use the pre-sacrifice figure depending on lender or scheme rules.

Worked example: a higher-rate employee on GBP 80,000 sacrifices GBP 10,000 to pension. Pre-sacrifice tax + NI: GBP 17,432 + GBP 4,211 = GBP 21,643. Post-sacrifice tax + NI on GBP 70,000: GBP 13,432 + GBP 4,011 = GBP 17,443. Saving on personal deductions GBP 4,200 (42% of GBP 10,000). The GBP 10,000 reaches the pension net of zero personal tax and NI, compared with GBP 5,800 net if taken as salary.

Edge case: salary sacrifice can take pay below the National Minimum Wage threshold, which is unlawful under section 17 of the National Minimum Wage Act 1998. Schemes must check the post-sacrifice hourly rate against the NMW rate for the worker's age band. Some employers operate a 'sacrifice cap' to prevent the issue.

Three full worked examples

Example A: GBP 28,000 graduate, Plan 2 loan, 5% pension relief-at-source. Tax: GBP 28,000 less GBP 12,570 PA = GBP 15,430 at 20% = GBP 3,086. NI: GBP 15,430 at 8% = GBP 1,234. Student loan: GBP 28,000 less GBP 28,470 = below threshold, zero. Pension employee 4% of qualifying earnings GBP 21,760 = GBP 870 (gross GBP 1,088 after 25% relief uplift). Take-home GBP 22,810 a year, GBP 1,901 a month.

Example B: GBP 55,000 mid-career, Plan 2 + Postgrad loans, 5% net-pay pension. Pension: GBP 2,750 deducted gross from pay (net cost GBP 2,200 at 20% relief, but actually deducted GBP 2,750 cash with marginal-rate relief built in). Tax base GBP 52,250. Tax: GBP 37,700 at 20% + GBP 1,980 at 40% = GBP 8,332. NI on full GBP 55,000: GBP 3,110. Student loan: 9% of GBP 26,530 (55,000-28,470) = GBP 2,388. Postgrad: 6% of GBP 34,000 = GBP 2,040. Total deductions GBP 18,620. Take-home GBP 36,380 a year, GBP 3,032 a month.

Example C: GBP 110,000 senior, 10% salary sacrifice into pension. Sacrifice GBP 11,000, new gross GBP 99,000. Tax: PA fully restored at this income (was GBP 7,570 pre-sacrifice with GBP 5,000 of taper). New tax: GBP 37,700 at 20% + GBP 48,730 at 40% = GBP 27,032. NI: 8% on GBP 37,700 + 2% on GBP 48,730 = GBP 3,991. Total deductions GBP 31,023. Take-home GBP 67,977 plus GBP 11,000 in pension. The sacrifice has restored allowance worth GBP 6,250 of tax-free income on top of removing high-rate tax + NI on the sacrificed amount.

Frequently asked questions

How do I calculate UK take-home from salary?

Subtract income tax (band-based on the figure above the Personal Allowance), NI (8% on the slice between PT and UEL, 2% above), pension contribution (5% employee minimum under auto-enrolment), student loan (9% above the relevant plan threshold), postgraduate loan (6% above GBP 21,000), and any salary sacrifice (which reduces gross before all other calculations). The remainder is take-home. Order matters: salary sacrifice first, then tax and NI, then pension and loans.

Why is my bonus taxed so heavily?

Because the cumulative PAYE calculation in the bonus month pushes year-to-date pay over a band threshold (basic to higher, or higher to additional). The annualised position is correct; the bonus month bears more of the year's tax, and the following months recalibrate. NI on the bonus month also captures the full 8% rate on the bonus amount where year-to-date pay is below the UEL. Salary sacrifice into pension is the standard way to reduce bonus tax exposure where the employer allows.

What is the NI Upper Earnings Limit?

GBP 50,270 a year (GBP 967 a week, GBP 4,189 a month) for 2025/26 and broadly 2026/27. Earnings above the UEL attract Class 1 employee NI at 2% rather than 8%. The Primary Threshold (where 8% starts) is GBP 12,570 a year. The Lower Earnings Limit (where NI counts toward State Pension) is lower at GBP 6,500. The UEL aligns deliberately with the income tax basic-rate threshold for administrative simplicity.

When do student loan deductions start?

When annual pay exceeds the relevant plan threshold: Plan 1 GBP 26,065, Plan 2 GBP 28,470, Plan 4 (Scotland) GBP 32,745, Plan 5 (post-Aug 2023 starters in England) GBP 25,000. Postgraduate loans start above GBP 21,000. Deductions are 9% on the portion of pay above the threshold (6% for postgraduate). Deductions are non-cumulative, so a bonus month produces higher deductions in that month. The Student Loans Company collects through HMRC and applies to the loan balance with interest under the relevant terms.

Is salary sacrifice always worth it?

Usually for higher-rate taxpayers, often for basic-rate. Sacrificing GBP 1,000 of salary saves GBP 420 of personal tax+NI at higher rate (40% IT + 2% NI) and adds GBP 1,000 to pension (often plus employer NI saving). At basic rate the personal saving is GBP 280 (20% IT + 8% NI). Downsides include reduced borrowing power for some mortgage lenders, lower statutory pay calculations in some employer schemes, and potential breach of National Minimum Wage on lower-paid workers. The pension contribution is locked until age 55 (rising to 57 from 2028).

Why is my pension shown differently each month?

Auto-enrolment schemes use one of three bases: qualifying earnings (the slice between Lower Earnings Limit and Upper Earnings Limit), basic pay, or total earnings. The base changes the contribution from month to month if pay varies. Qualifying earnings is the most common default; some employers use total earnings under certification rules. Net pay vs relief-at-source schemes also differ: net pay deducts gross from pay before tax; relief-at-source deducts net with 25% added by the provider claim from HMRC.