Take-home pay calculator

How your take-home pay is worked out

Four things come out of a UK salary, and each one is calculated on a different figure. That is why two people on the same salary with the same pension contribution can take home different amounts.

1. Income tax

You pay nothing on the first £12,570 — the personal allowance. Above that, income is taxed in bands. In England, Wales and Northern Ireland there are three; Scotland has six. Crucially, the bands apply to what is left after the allowance, not to your whole salary.

2. National Insurance

Employee National Insurance is 8% on earnings between £12,570 and £50,270, then 2% above that. It drops to the lower rate at the top rather than rising, which surprises people. NI is charged on your earnings, so the personal allowance is irrelevant and benefits in kind are excluded.

3. Student loan

You repay a percentage of everything above your plan's threshold — nothing on the amount below it. Each repayment is rounded down to whole pounds, which is why a small pay rise sometimes changes nothing. A postgraduate loan is repaid alongside an undergraduate plan, so someone on Plan 2 with a master's loan can lose 15% of the top slice of their salary to loans alone.

4. Pension — and why the arrangement matters

This is where most salary calculators go wrong. There are three ways a workplace pension can be run, and they do not produce the same take-home pay:

• Salary sacrifice. You formally give up salary, so it never counts as pay. It escapes income tax and National Insurance. This is the only one that saves NI.
• Net pay arrangement. Deducted from gross pay before income tax but after NI is worked out. You get full tax relief immediately, at whatever rate you pay.
• Relief at source. Taken from pay that has already been taxed. Your provider claims back 20% from HMRC, so you only pay 80% of the contribution. If you are a higher rate taxpayer you must claim the rest yourself through Self Assessment — it does not happen automatically, and a great many people never claim it.

On a £50,000 salary, a £5,000 contribution costs a salary-sacrifice member £400 less over the year than the same contribution under net pay, purely because of the National Insurance saving. More on salary sacrifice.

The £100,000 trap

Once your income passes £100,000, your personal allowance is withdrawn at £1 for every £2 you earn. You are paying 40% on the extra income and losing allowance that was previously untaxed, which produces an effective rate of 60% until the allowance runs out at £125,140. In Scotland the advanced rate makes it 67.5%.

A pension contribution in that range gets relief at the same 60%, which is why it is the single most effective place to put money in the UK tax system. Read the full explanation.