UK Tax & Payroll Guide

How Salary After Tax Is Calculated

A transparent, step-by-step guide explaining how the UK PAYE system calculates Income Tax, National Insurance, and net take-home pay for the 2026/27 tax year.

Published: 2026-09-29•Reviewed: September 29, 2026

Direct Answer: The UK Take-Home Pay Formula

In the UK, net take-home salary is what remains after subtracting statutory Income Tax and employee National Insurance (NI) from your gross salary:

Take-Home Pay = Gross Annual Salary − Income Tax − Employee National Insurance

Personal Allowance

The tax-free threshold (£12,570 for 2026/27) before Income Tax applies.

Progressive Tax Brackets

How earnings above the allowance are taxed in graduated slices (20%, 40%, 45%).

National Insurance

Employee Class 1 contributions funding statutory benefits and state pensions.

How HMRC Calculates Deductions Step by Step

1. Determine the Personal Allowance

For 2026/27, the standard UK Personal Allowance is £12,570. If your adjusted net income exceeds £100,000, your allowance reduces by £1 for every £2 of income above £100,000, reaching £0 at £125,140.

2. Calculate Taxable Income

Subtract your Personal Allowance from gross salary. The remainder is taxable employment income.

Taxable Income = max(0, Gross Salary − Personal Allowance)

3. Apply Progressive Income Tax Bands

In England, Wales, and Northern Ireland, taxable income is taxed in three progressive tiers:

Basic Rate (20%): First £37,700 of taxable income (gross £12,571 to £50,270).
Higher Rate (40%): Next £87,440 of taxable income (gross £50,271 to £125,140).
Additional Rate (45%): Taxable income above £125,140.

4. Calculate Employee National Insurance

Class 1 Category A National Insurance is charged on total gross earnings:

0%: Up to £12,570 per year (Primary Threshold).
8%: On earnings between £12,570 and £50,270 (Upper Earnings Limit).
2%: On earnings above £50,270.

Worked Example: £45,000 Annual Salary (England)

• Gross Annual Salary: £45,000.00

• Personal Allowance: £12,570.00

• Taxable Income: £45,000 − £12,570 = £32,430.00

• Income Tax (20% on £32,430): £6,486.00

• National Insurance (8% on £45,000 − £12,570 = £32,430): £2,594.40

• Total Deductions: £6,486.00 + £2,594.40 = £9,080.40 (20.2%)

• Annual Take-Home Pay: £45,000 − £9,080.40 = £35,919.60 (£2,993.30/mo)

Calculate Your UK Take-Home Pay Live

Use Formulexa's free UK Salary After Tax Calculator to test different pay frequencies, see Scottish devolved tax rates, and view monthly, weekly, and hourly equivalents.

Open Salary After Tax Calculator

Frequently Asked Questions

Does this calculator use my individual PAYE tax code?

No. V1 uses the standard £12,570 Personal Allowance assumption where applicable and does not interpret individual PAYE tax codes. Scottish, Welsh, emergency and other code adjustments can change actual payroll deductions. See GOV.UK: what your tax code means for details.

Why does my effective tax rate differ from my marginal tax bracket?

Your marginal tax rate is the percentage paid on the last pound of income (for example, 40%). Your effective tax rate is total tax paid divided by total gross salary. Because the first £12,570 is tax-free and the next £37,700 is taxed at only 20%, your effective tax rate is always significantly lower than your marginal rate.

Do students or part-time workers pay tax in the UK?

Income tax applies to taxable employment income regardless of age or student status. However, if your total annual earnings from all jobs remain below the £12,570 Personal Allowance, you owe £0 in UK Income Tax.