How we calculate take-home pay

United Kingdom

Step 1: the pay we start from

We turn any pay you type into a yearly figure: a month is a twelfth of a year, a week is a 52nd, a day is a fifth of a week, and an hour is a week divided by your hours. A one-off bonus is added to the year and treated as paid in a single month.

Two kinds of pension come off before tax: salary sacrifice (your salary is lower, so tax and National Insurance both fall) and net pay (taken before income tax only). What is left is your taxable pay.

Step 2: the tax-free allowance

The Personal Allowance is £12,570 for 2026/27. It shrinks by £1 for every £2 of adjusted net income over £100,000, so it is zero from £125,140:

allowance = £12,570 − (income − £100,000) ÷ 2, never below zero.

If you type a tax code, we use it instead: the number times ten is your tax-free amount (1257L gives £12,570), a K code adds to your taxable pay, and BR, D0 and D1 tax everything at one rate.

Step 3: income tax, band by band

Taxable pay above the allowance is cut into bands, and each band has its own rate. Outside Scotland: 20% up to £50,270, 40% up to £125,140 and 45% above. Scotland has six bands, from 19% to 48%.

income tax = the sum, over every band, of (pay inside the band × the band’s rate)

Payroll adds tax up through the year, so for a normal code the year’s tax is the same however it is paid. An emergency code (W1, M1 or X) works out each month on its own, which can take too much in a bonus month; we show both figures.

Step 4: National Insurance

Employees pay 8% on earnings between £12,570 and £50,270 a year, and 2% above:

NI = 8% × (pay − £12,570, up to £37,700) + 2% × (pay over £50,270)

Unlike tax, NI is worked out on each payday on its own, so for a bonus month we use the monthly limits (£1,048 and £4,189). Over State Pension age there is no employee NI. Employers pay 15% on pay over £5,000 a year, which we show as the cost of the job.

Step 5: student loans

You repay 9% of pay over your plan’s threshold (Plan 1 £26,900, Plan 2 £29,385, Plan 4 £33,795, Plan 5 £25,000), and 6% over £21,000 for a Postgraduate Loan. With two undergraduate plans you repay 9% once, over the lower threshold.

Repayments use the same pay as National Insurance, so salary sacrifice lowers them and net pay pensions do not. Payroll rounds each payday’s repayment down to the pound; the monthly Plan 2 threshold, for example, is £2,448.75.

Step 6: relief at source pensions

With relief at source you pay 80% of the contribution from your take-home pay and the provider adds 20%. If you pay more than the basic rate, you can claim the rest. We work that out by widening your tax bands by the gross contribution and lowering your adjusted net income by the same amount, then taking the difference in tax.

Step 7: take-home pay and your rates

take-home = pay − income tax − National Insurance − student loans − pension taken from pay

The effective rate is income tax plus NI as a share of your pay. The marginal rate is how much of the next £1 of salary goes in tax, NI and student loans: we work it out by adding £1 and running the whole sum again.

A worked example: £35,000 with a Plan 2 loan and a 5% net pay pension, 2026/27

1. Pension: 5% of £35,000 is £1,750.00, taken before tax, so taxable pay is £33,250.00.
2. Income tax: £20,680.00 above the £12,570 allowance, all at 20%: £4,136.00.
3. National Insurance: 8% of £35,000 − £12,570: £1,794.40.
4. Plan 2: 9% of £35,000 − £29,385: £505.35.
5. Take-home: £26,814.25 a year, or £2,234.52 a month.

How we keep it right

Every figure comes from GOV.UK or gov.scot and is listed on the sources page with the date we checked it. Our automated tests check every band edge, threshold, loan plan, pension type and tax code, and compare the results with worked examples that HMRC, GOV.UK and the Scottish Government publish. A wrong rate makes the tests fail before anything is published.