How is take-home pay calculated?

For most employees, payroll deducts in this order:

• Pension contributions — if made by salary sacrifice, they come off before tax and NI are worked out (which is why pensions are such good value — more below).
• Income tax — collected through PAYE using your tax code, on income above your personal allowance.
• National Insurance — a separate charge with its own thresholds and rates.
• Student loan — 9% (or 6% for postgraduate loans) of income above your plan’s threshold.

What’s left is your net — take-home — pay.

You pay no income tax on the first £12,570 (the personal allowance). Above that, in England, Wales and Northern Ireland (2026/27):

Only the slice of income inside each band is taxed at that band’s rate — earning £51,000 does not tax everything at 40%, just the £730 above the threshold. Scotland uses different bands and rates (19%–48%). For the full picture — including the 60% trap above £100,000 — see our income tax guide or the Income Tax Calculator.

Employee (Class 1) National Insurance for 2026/27 is charged at:

• 0% on earnings up to £12,570 a year;
• 8% on earnings between £12,570 and £50,270;
• 2% on everything above £50,270.

Two quirks worth knowing: NI is worked out per pay period (weekly or monthly), not annually — so a one-off bonus month can attract more NI than the same money spread over a year — and unlike income tax it applies UK-wide, including Scotland.

Here’s the full calculation for a £35,000 salary in England (no pension or student loan yet):

Total deductions are £6,280 — an effective rate of 17.9%, even though the marginal rate on the next pound is 28% (20% tax + 8% NI). For comparison, £25,000 takes home £21,520 (£1,793/month) and £50,000 takes home £39,520 (£3,293/month). Try your own salary in the Salary Calculator for the same breakdown.

Add a 5% pension contribution to that £35,000 salary via salary sacrifice and something pleasant happens:

• £1,750 a year (about £146 a month) goes into your pension…
• …but take-home only falls by about £105 a month.

Because sacrificed salary escapes both 20% tax and 8% NI, each £1 in your pension only costs about 72p of take-home pay — before any employer match, which is extra free money on top. Under auto-enrolment, a minimum of 8% of qualifying earnings (typically 5% from you, 3% from your employer) goes in unless you opt out. Model contributions with the Salary Calculator and project the pot with the Pension Calculator.

Student loan repayments are collected through payroll at 9% of income above your plan’s threshold (6% for postgraduate loans). The 2026/27 thresholds:

On £35,000 with a Plan 2 loan, that’s (£35,000 − £29,385) × 9% ≈ £505 a year — about £42 a month. Earn below your threshold and you repay nothing.

Your tax code tells your employer how much allowance to give you. 1257L is the standard code — the personal allowance of £12,570 with no adjustments. Common variations:

• BR — everything taxed at 20%, usually on a second job;
• K codes — negative allowance (untaxed benefits exceed your allowance);
• W1/M1 (emergency) — non-cumulative codes often applied when you change jobs, which can over-tax you temporarily;
• S prefix — Scottish rates apply.

A wrong code is the most common reason take-home pay looks wrong. Check yours against HMRC’s guidance and reclaim overpaid tax — refunds go back up to four tax years.