How your take-home pay is calculated

Gross salary in, net pay out — and the two separate systems working on it in between.

Salary & tax · England, Wales & NI · 2026/27

Most people know their gross salary and their monthly bank deposit, and have only a vague sense of what happened in between. Here is the full journey, using the 2026/27 rates for England, Wales and Northern Ireland.

Only the slice above each threshold is taxed

The most persistent myth in UK pay is that crossing into the higher-rate band taxes your whole salary at 40%. It does not. Each band applies only to the portion of income that falls inside it.

On a £60,000 salary, the first £12,570 is untaxed, the next £37,700 is taxed at 20%, and only the remaining £9,730 is taxed at 40%. A pay rise that takes you just over £50,270 always leaves you better off.

Two separate deductions, two separate rules

Income tax and National Insurance are calculated independently, which is why the maths feels awkward. They happen to share the same £12,570 starting point and £50,270 upper threshold in 2026/27, but they behave differently: NI actually gets cheaper above £50,270, dropping from 8% to 2%, at the same moment income tax gets more expensive.

NI is also normally calculated per pay period rather than annually, so an irregular month — a bonus, or overtime — can produce a NI figure that looks wrong against your annual salary.

The 60% trap between £100,000 and £125,140

This is the one genuinely strange corner of the UK system. Once your adjusted net income passes £100,000, your personal allowance shrinks by £1 for every £2 you earn above it, disappearing entirely at £125,140.

The effect is that income in that band is taxed at 40%, and you simultaneously lose tax-free allowance that was also worth 40% — producing an effective marginal rate of about 60%. Earning £110,000 can leave you with surprisingly little more than £100,000. Pension contributions and charitable giving reduce adjusted net income, which is why people in this band often increase pension payments rather than take the cash.

What our calculator leaves out

A quick estimator cannot know your full circumstances. The most common things that will move your real payslip away from the estimate:

• Student loan repayments — a further 9% (Plans 1, 2, 4) or 6% (postgraduate) above the relevant threshold.
• Pension contributions — these usually reduce taxable pay, so your tax falls while your take-home falls too.
• Scottish income tax — Scotland sets its own bands and rates, which differ from those above.
• Your tax code — benefits in kind, underpaid tax from previous years, or a wrong code can all shift the figure.

Threshold freezes and fiscal drag

The personal allowance and the higher-rate threshold have been frozen since 2021 and are now set to stay frozen until April 2031. Because they don't rise with wages, pay increases gradually push more of your income into higher bands over time. This is often called fiscal drag: your tax rate rises without any rate ever being announced as changing.

Common questions