UK Salary, Tax & Take-Home Pay Explained

Your salary is the number on your contract. Your take-home is what lands in your account. The gap between the two is bigger than most people expect — and more predictable than most people realise. This guide walks through every layer of the deduction stack, with worked examples using real 2026/27 figures, so you can go from “my gross is £X” to “and here’s exactly why my net is £Y.”

Gross pay is your total employment income before any deductions. Net pay (take-home) is what arrives after income tax, National Insurance, and any pension or other deductions.

Three things eat into the difference every pay period:

• Income tax — taken via PAYE (Pay As You Earn).
• National Insurance (NI) — a separate payroll deduction with its own thresholds.
• Pension contributions — optional but impactful on your tax bill if your employer offers salary sacrifice.

Other items — student loan repayments, child benefit clawback, benefits-in-kind — add extra layers depending on your situation. Each one is covered below.

Worked example: £35,000 salary, 2026/27

That is an effective rate of 18.0%. Every pound you earn above the higher-rate threshold (£50,270) costs 40p in tax alone, and another 2p in NI on top. ^[gov.uk]

Income tax does not apply all-or-nothing. It stacks in slices. Each slice is taxed at its own rate — moving into the higher-rate band does not mean your whole income is taxed at 40%.

2026/27 bands — England, Wales & Northern Ireland

The thresholds have been frozen at these levels since 2022/23 and are set to remain frozen through at least 2027/28. Inflation means more people move into higher bands each year even without a pay rise — this is called “fiscal drag.” ^[gov.uk]

Scotland uses different bands

Scottish taxpayers pay Scottish income tax on non-savings, non-dividend income. There are six bands in 2026/27 — Starter 19%, Basic 20%, Intermediate 21%, Higher 42%, Advanced 45%, Top 48% — with the Higher band starting at £43,662, lower than the rUK Higher threshold of £50,270 and at a higher rate. ^[gov.scot] Scottish taxpayers still pay rUK National Insurance, which is not devolved.

A Scottish taxpayer on £48,000 pays income tax at 42% on income between £43,662 and £48,000 — that slice costs an extra £919 compared to an equivalent English taxpayer. Both pay the same NI.

National Insurance is, in practical terms, a second income tax. For employees in 2026/27: ^[gov.uk]

• 8% on earnings between £12,570 and £50,270.
• 2% on earnings above £50,270 (no upper limit).

Worked example: NI at £45,000

NI-liable earnings = £45,000 − £12,570 = £32,430.
NI = 8% × £32,430 = £2,594/year (about £216/month).

NI does not apply to pension contributions made via salary sacrifice, which is part of why salary sacrifice is so effective. NI also does not apply to dividends — a key reason why contractors operating outside IR35 via a limited company typically pay themselves a low director salary plus dividends.

Employer NI (2026/27)

Your employer pays a separate NI contribution: 15% on your earnings above £5,000. ^[gov.uk] You do not see this on your payslip, but it affects your total employment cost and is central to understanding contractor day rates inside IR35.

This is the most searched-for topic in UK personal finance, and the least well understood.

The mechanism

Your Personal Allowance is £12,570 in 2026/27. If your adjusted net income (ANI) exceeds £100,000, HMRC reduces that allowance by £1 for every £2 of income over £100,000. ^[gov.uk] By £125,140, the allowance is gone entirely.

That means a pound earned between £100,000 and £125,140 faces: 40% income tax on that pound itself, plus 40% income tax on the allowance that disappears (at 50p per £1 extra earned), plus 2% NI. The effective marginal rate is approximately 62%.

Worked example: £105,000 salary

What reduces ANI and restores the allowance

Salary sacrifice pension contributions, employer SIPP payments, and certain other reliefs reduce your ANI. Contributing enough via salary sacrifice to bring ANI below £100,000 restores the full £12,570 allowance — saving up to £5,028 in income tax.

Pension contributions interact with your tax bill in three different ways depending on which arrangement your workplace uses.

Relief at Source (RAS)

You pay your contribution net. Your pension provider claims 20% basic-rate relief from HMRC and adds it to your pot. Higher and additional-rate taxpayers can claim additional relief through Self Assessment. ^[gov.uk] NI impact: none — you pay NI on your full salary before the contribution.

Net Pay Arrangement

Your employer deducts the pension contribution from your gross pay before applying PAYE. You get full marginal-rate relief automatically — no Self Assessment needed for higher-rate relief. NI impact: none — you still pay NI on your full salary.

Salary Sacrifice

Your contractual salary is reduced by the contribution amount. PAYE and employee NI are both calculated on the lower salary. You save employee NI (8% or 2%) on the sacrificed amount. Your employer also saves employer NI (15%) — many employers pass some or all of that saving back into your pension.

Worked example: £50,000 salary, 5% pension sacrifice

The same £2,500 pension contribution costs £700 less via salary sacrifice than via a net personal payment into a SIPP. ^[gov.uk]

Salary sacrifice applies to more than pensions. Each of the following can reduce your gross for PAYE and NI: ^[gov.uk]

• Workplace pension
• Childcare vouchers (legacy schemes — closed to new entrants, existing users can continue)
• Electric vehicle lease (company EV scheme — benefit-in-kind on EVs is currently very low)
• Cycle to Work scheme (bikes and equipment)
• Holiday purchase (buying extra annual leave days)

Worked example: full stack at £60,000

These savings are in addition to the value of the benefit itself. The Darisy Salary Calculator handles all five sacrifice items simultaneously.

Student loan repayments are collected via payroll, alongside income tax and NI. Which plan you are on determines your repayment threshold and rate. ^[gov.uk]

2026/27 thresholds

Plans 1, 2, 4, and 5 are mutually exclusive. Postgrad stacks on top of whichever plan applies.

Worked example: Plan 2 at £35,000

Repayment income = £35,000 − £28,470 = £6,530.
Annual repayment = 9% × £6,530 = £588 (£49/month).

Student loan repayments do not reduce your taxable income — you pay full tax on the gross figure, and then repayments come off on top. That is different from pension contributions, which do reduce your tax bill.

If you or your partner receives Child Benefit and either of you has an adjusted net income over £60,000, HMRC claws back some or all of it via the High Income Child Benefit Charge. ^[gov.uk]

• ANI between £60,000 and £80,000: 1% of Child Benefit for every £200 of ANI above £60,000.
• ANI at or above £80,000: the entire Child Benefit received is clawed back.

Worked example: £72,000 ANI, one child

Child Benefit (2026/27) for one child: approximately £1,331/year.
ANI above £60,000: £12,000.
Charge percentage: 12,000 ÷ 200 = 60%.
HICBC = 60% × £1,331 = £799/year.

The family keeps £532 of the Child Benefit but faces a higher effective marginal rate in the £60,000–£80,000 band.

If you work through a limited company or umbrella, your take-home depends heavily on your IR35 status. ^[gov.uk]

Outside IR35 — limited company

You are treated as genuinely self-employed. You can pay yourself a mix of director salary and dividends. A common optimisation: take a salary equal to the personal allowance (£12,570) and take remaining profit as dividends.

Dividend tax rates in 2026/27

Source: gov.uk — Tax on dividends. Corporation tax is paid by the company (19–25% depending on profits) before dividends are distributed. Contractor expenses can be deducted against company revenue.

Inside IR35 — limited company

The engagement is treated as employment. The “deemed salary” is subject to PAYE income tax and employee NI. Employer NI (15%) is also deducted from your assignment rate — you bear both sides. ^[gov.uk]

Worked example: £500/day, 46 weeks, inside IR35

Day rate revenue: 500 × 5 × 46 = £115,000
Less employer NI (15% above £5,000): ~£16,500
Deemed salary: ~£98,500
Income tax + employee NI on £98,500: ~£35,600
Approximate take-home: ~£62,900 (effective rate ~55%)

Via umbrella

An umbrella company employs you, collects your assignment rate, deducts employer NI and umbrella margin, then runs PAYE. The umbrella fee (modelled at £25/week in the Darisy calculator — actual fees typically range £15–£40/week) comes off before PAYE. ^[gov.uk]

IR35 status is assessed by the end client for medium and large private-sector engagements. If you are inside IR35 and receive the gross assignment rate into your limited company, employer NI and an equivalent PAYE treatment still apply.

Your PAYE tax code tells your employer how much tax to deduct. ^[gov.uk] The most common codes:

If your code is wrong, you could be overpaying or underpaying tax. You can claim back overpaid tax for up to four tax years.

If your partner earns below the personal allowance (or pays basic-rate tax only) and you are a basic-rate taxpayer, the non-earner can transfer £1,260 of their personal allowance to you. ^[gov.uk]

Your personal allowance becomes £13,830. Your tax bill falls by up to £252/year. The transfer is applied for through HMRC and can be backdated up to four years.

Why is my marginal rate higher than the headline band rate?

Each deduction has its own rate and threshold. If you are in the £100,000–£125,140 band, income tax, allowance taper, and NI combine to produce a marginal rate around 62%. If you have a student loan, add another 9%. If the HICBC applies, add yet more. The Darisy Salary Calculator surfaces your marginal rate separately from your effective rate.

My employer says their NI saving helps fund my pension. How does that work?

When you sacrifice salary, your employer no longer pays NI (15%) on that portion of your pay. Some employers pass that saving into your pension pot. On a £5,000 sacrifice, the employer saves £750 in NI. It is worth checking your employment contract or asking HR.

I got a pay rise above £50,270. Have I “entered the 40% band”?

Only the income above £50,270 is taxed at 40%. Your income below that threshold stays taxed at 20%. “Entering a band” never means your whole salary is taxed at the higher rate. The Darisy Salary Calculator shows the income-tax bands card split out precisely.

How does Scotland affect my NI?

NI is not devolved. Scottish taxpayers pay the same employee NI rates as everyone else in the UK — 8% between £12,570 and £50,270, 2% above that. ^[gov.uk] Only income tax differs between Scotland and the rest of the UK.

When should I consider a SIPP on top of my workplace pension?

A SIPP (Self-Invested Personal Pension) accepts Relief at Source contributions and can reduce your ANI below the £100,000 or £60,000 HICBC thresholds. Darisy provides information, not advice — see what Darisy is and is not and our privacy policy.

Head to the Darisy Salary Calculator and enter your gross annual salary. You will immediately see your take-home, effective rate, and marginal rate without filling in any other field.

From there you can:

• Switch to Contractor mode and enter your day rate to compare Ltd, umbrella, and PAYE.
• Toggle Scottish taxpayer to see the six-band calculation.
• Enter salary sacrifice amounts (pension, EV, cycle, childcare, holiday) to see how each one reduces your tax and NI.
• Add your child benefit amount to see the HICBC calculation and how to reduce it.
• Compare scenarios side by side — “what if I increase pension contributions to 10%?”
• Switch tax year to see how your take-home compares across 2022/23 to 2026/27.

Every output has a tooltip explaining the number. If a result surprises you, the “explain this number” option walks through the calculation step by step.

Last reviewed: 2026-05-10. Applies to: UK.