How UK Salary is Calculated: Tax, National Insurance, Pension, and Net Pay

Net pay is calculated once tax, National Insurance, pension contributions, and student loan repayments are taken away from your gross pay. This page explains each deduction step by step, based on the 2025/26 tax bands.

Gross pay and pay frequency

Gross pay is the amount your employer agrees to pay before any deductions. It can be quoted annually, monthly, weekly, daily, or hourly. Your employer runs PAYE (Pay As You Earn), using your tax code to work out how much tax and NI to deduct each pay period.

Most people in the UK are paid monthly. When converting between periods: 1 year = 12 months, 52 weeks, 260 working days (52 × 5).

Personal allowance and the £100,000 taper

The personal allowance for 2025/26 is £12,570. This is the amount you can earn completely tax-free each year. Any earnings above this are taxable.

Where adjusted net income exceeds £100,000, the personal allowance is reduced by £1 for every £2 above that threshold. At £125,140, the personal allowance is gone entirely. This results in an effective marginal tax rate of 60% on income between £100,000 and £125,140.

Income tax bands: England, Wales & Northern Ireland

After deduction for the personal allowance, the remaining income is taxed in bands:

Band	Taxable income	Rate
Basic rate	£0 – £37,700	20%
Higher rate	£37,701 – £125,140	40%
Additional rate	Over £125,140	45%

These bands apply to taxable income (gross minus personal allowance), not total income.

Scottish income tax bands

Scotland sets its own income tax rates. Based on Scottish Government published rates for 2025/26, the bands are:

Band	Taxable income	Rate
Starter rate	£0 – £2,827	19%
Basic rate	£2,828 – £14,921	20%
Intermediate rate	£14,922 – £31,092	21%
Higher rate	£31,093 – £62,430	42%
Advanced rate	£62,431 – £125,140	45%
Top rate	Over £125,140	48%

Scottish taxpayers use tax codes starting with “S” (e.g. S1257L). The personal allowance is the same as the rest of the UK.

National Insurance deductions

For 2025/26, Class 1 employee NI is charged at two rates:

8% on earnings between £12,570 (primary threshold) and £50,270 (upper earnings limit).
2% on earnings above £50,270.

NI is calculated per pay period, not cumulatively like income tax. Earnings below the primary threshold are not subject to NI.

Pension contributions

Under auto-enrolment, employees contribute at least 5% of qualifying earnings to a workplace pension (8% total including the employer's share). Qualifying earnings for 2025/26 are between £6,240 and £50,270.

How the contribution is deducted affects your tax. With relief at source, the money comes out of your net pay and the pension provider claims 20% tax relief from HMRC. If you pay higher-rate tax, you need to reclaim the extra relief through self-assessment.

Student loan repayments

Student loan repayments are collected through PAYE each month. The annual threshold is divided by 12 and rounded down to the nearest pound. You repay 9% of earnings above that threshold for undergraduate plans, or 6% for postgraduate loans.

What's not included in a standard calculation

Marriage allowance or blind person's allowance.
Gift Aid donations that expand basic-rate bands.
Benefits in kind (company car, private medical insurance).
Share incentive plans (including Enterprise Management Incentives).
Tax relief for professional subscriptions or flat-rate expenses.
Child benefit high-income charge (applies above £60,000).

Data Sources

Tax bands, NI thresholds, and deduction rules are taken from HMRC and GOV.UK published rates for the current tax year.

Limitations and Disclaimer

These are estimates for general information only. They don't cover every situation, such as additional income, benefits, or complex tax arrangements. This site does not provide financial, tax, or legal advice. For advice specific to your circumstances, speak to a qualified professional or check HMRC guidance directly.