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

Gross pay and pay frequency

Gross pay is the amount an employer agrees to pay before any deductions are made. It can be expressed as annual, monthly, weekly, daily, or hourly. Employers operate Pay As You Earn (PAYE), calculating deductions using the employee's tax code and payroll data. HMRC sets the tax codes and rules that determine how much tax and National Insurance is deducted from each pay packet.

The majority of people are paid monthly in the UK. When converting across periods, the standard assumptions are 12 months in a year, 52 weeks in a year, and 260 working days in a year (52 weeks × 5 days).

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:

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:

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 the tax year 2025/26, Class 1 employee National Insurance Contributions are charged at two rates:

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

National Insurance contributions are calculated on earnings per pay period rather than cumulatively like income tax. Anything below the primary threshold attracts no National Insurance.

Pension contributions

Under auto-enrolment, employees must contribute a minimum of 5% of qualifying earnings to a workplace pension, with a total minimum contribution of 8% including employer contributions. Qualifying earnings for 2025/26 are anything between £6,240 and £50,270.

Pension contributions can be deducted in different ways, each with a different tax effect. Under relief at source, contributions are deducted from net pay and the pension provider claims tax relief at the basic rate from HMRC. Higher-rate taxpayers must reclaim the additional relief through self-assessment.

Student loan repayments

HMRC collects student loan repayments through PAYE each month. The yearly threshold is divided by twelve and rounded down to the nearest whole pound for monthly thresholds. Repayments are 9% of earnings above the 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 in respect of professional subscriptions or flat-rate expenses.
• Child benefit high-income charge (applies above £60,000).

Data Sources

Salary calculations on this website are based on publicly available information published by HM Revenue & Customs (HMRC) and GOV.UK, including current income tax bands, National Insurance thresholds, and statutory deductions applicable in the United Kingdom.

Limitations and Disclaimer

The calculations provided are estimates intended for general informational purposes only. They do not account for all individual circumstances, such as additional income, benefits, tax reliefs, or complex tax arrangements. This website does not provide financial, tax, or legal advice. For personalised advice, users should consult a qualified professional or refer directly to HMRC guidance.