UK Salary, Tax & NI Explained
Where your gross goes, how the bands stack, and why £100k is the worst place to earn.
Your “salary” is the gross figure on the contract. Your take-home is what lands in your account after HMRC has finished helping itself. Three things eat into the difference: income tax, National Insurance, and any pension contribution. Understanding the order they apply explains a lot of the “but I got a pay rise and feel poorer” stories.
Income tax bands (2025/26)
Tax stacks in slices, not all-or-nothing. The slices for England, Wales and Northern Ireland:
• £0 – £12,570 — Personal Allowance, 0%. Tax-free.
• £12,571 – £50,270 — Basic rate, 20%.
• £50,271 – £125,140 — Higher rate, 40%.
• Over £125,140 — Additional rate, 45%.
Scotland uses different bands and an extra Intermediate band. The big distortion (the £100k cliff) applies UK-wide via NI and the personal-allowance taper.
National Insurance
NI is a second income tax with a different name. For employees in 2025/26: 8% between £12,570 and £50,270, then 2% above. Self-employed pay Class 4 (6% / 2%) and a flat Class 2 if profits are over £6,725. NI does not stack on dividends — that's why owner-managed companies often pay themselves a low salary plus dividends.
The £100k taper — your worst marginal rate
Above £100,000 of adjusted net income, your Personal Allowance is reduced by £1 for every £2 you earn. By £125,140 it's gone entirely. That extra slice of tax on the disappearing allowance — combined with the 40% rate already applying — gives an effective marginal rate of 60% on every pound between £100k and £125k.
You also lose tax-free childcare and 30 free hours at the same threshold. For families it can mean a £10k pay rise actively makes you poorer.
Salary sacrifice & pension contributions
A workplace pension via salary sacrifice is the only mechanism that ducks both tax AND NI on the sacrificed portion. Compare:
• Relief at Source (RAS): you pay net, provider grosses up by 20%, you reclaim higher/additional rate via Self Assessment. NI is still paid on the full amount.
• Net Pay: contribution comes off pay before income tax — full marginal-rate relief automatically. NI still paid on the full salary.
• Salary Sacrifice: salary itself is reduced. You save income tax AND NI; your employer saves their 15% NI too, which some employers route into your pension.
Sal-sac is especially powerful in the £100k-£125k band — sacrificing back below £100k restores your full Personal Allowance and obliterates the 60% marginal rate.
Practical takeaways
• Look at marginal rate, not average rate — it's what determines whether the next £1 is worth earning vs sacrificing.
• If you're between £100k and £125k, find out whether your employer offers salary sacrifice. The mechanics matter more than the headline rate.
• Bonuses are taxed at your marginal rate. Bonus sacrifice into a pension is one of the highest-leverage moves available to a UK employee.
