How to Calculate Your Take-Home Salary

UK

What Is a Take-Home Salary?

Your take-home pay, also known as net pay or net salary, is the amount of money you
receive after specific deductions such as tax, national insurance, pension contributions
and student loan payments have been made from your gross monthly salary.

Your gross monthly salary is the total amount you earn as an employee each month.
This gross figure has had none of the necessary deductions applied.

Both gross and take-home salary will be outlined on your payslip, including a breakdown
of your deductions. On your payslip, you will also find your payroll number and tax code,
which impacts how much tax and national insurance you pay.

The tax code you are assigned, and therefore the proportion of your salary you will be
required to pay in tax and national insurance, depends upon the amount you earn per
month.

It is important that you receive a payslip each time you are paid and keep them safe for
future reference. Some companies use online systems, so their payslips are accessible
via a website or portal. If you are an employee or a casual worker, you are entitled to a
detailed payslip.

Whilst your payslip will help you to understand your take-home salary and how it is
reached, it is useful to be able to calculate your net salary for yourself.

The process means you will learn more about how deductions are calculated and will gain
an understanding of the different thresholds and factors that influence them. It also means
you will easily be able to sense-check your payslips.

Every employee has different salary deductions relating to their circumstances and salary
grade. They will, therefore, have differing take-home salaries.

How to Calculate Your Take-Home Salary UK

This article will talk through the factors that could impact your take-home salary. An
example will then help to illustrate the stages in completing the calculation for your own
wage.

Why Is It Important to Know Your Take-Home

Pay?

When you apply for a new job, the salary is usually quoted as gross and not net salary.
Gross salaries differ significantly from what you might ‘take-home’ so only considering
your gross salary can lead to an inaccurate idea of what your disposable income may be.

Knowing your take-home salary means that you can get a correct picture of your finances
and budget accordingly.

When searching for a new job role, being able to calculate your net salary will help you to
understand your resulting financial position and negotiate a salary that works for you.

Factors to Consider When Calculating Your

Take-Home Pay

Your take-home pay will be influenced by the following list of mandatory and voluntary
deductions. Not all deductions are relevant to all employees as some depend on personal
circumstances.

Tax

Your tax code is issued by HM Revenue & Customs (HMRC). It will start with a number
and end with a letter. Tax codes indicate to employers how much tax-free pay an
employee should receive before tax is deducted from the remainder.

Currently, people with one job or pension are assigned a tax code of 1250L. This means
you are entitled to the standard tax-free Personal Allowance of £12,500.

If you earn over £100,000, your Personal Allowance will be smaller. If your income is
above £125,000 your tax-free allowance is zero.

If you have more than one job or pension, claim Marriage Allowance, or a Blind Person’s
Allowance, your tax code will differ to reflect these factors.
The devolved nations each have different income tax bands so, if you reside in Scotland
or Wales, this will also be reflected in your tax code.

If you want to understand your tax code in greater detail, GOV.UK has a comprehensive
breakdown of tax code letters.

National Insurance

A National Insurance (NI) Number is a requirement to work in the UK. It is a personal

number for the entire social security system and you have the same number throughout
your lifetime. It contains both letters and numbers.

Your NI Number is used to ensure that your tax and National Insurance contributions are
recorded against your name only.

The amount of National Insurance deducted from your gross salary depends on your
employment status and how much you earn.

There are multiple National Insurance classes. If you are employed, you will pay Class I
National Insurance contributions.

Using Class I as an example; for most people who are employed, National Insurance rates
for the 2020/2021 tax year are:

12% on pay from £792 to £4,167 a month

2% on pay over £4,167 a month

If you are deferring your National Insurance because you have more than one job, you will
pay less.

If you are self-employed, you will pay Class 2 and/or Class 4 National Insurance through
Self-Assessment. The amount contributed will depend upon your profits.
If you are not eligible to pay National Insurance because you are employed with low
earnings, unemployed and not claiming benefits, self-employed with small profits or living
abroad, you may pay voluntary National Insurance contributions.

These voluntary contributions are made to ensure that you do not have gaps in your
National Insurance record.

Gaps may equate to not having enough qualifying years of paying National Insurance
contributions to get a full State Pension. A total of 10 years of contributions is required.

Student Loan

If you went to university in the UK and took out an income-contingent student loan to
facilitate your studies, you will be required to pay back this loan from your gross salary.

As an employee, you will start making student loan repayments from the April after you
graduate or finish your course. These repayments depend, however, on your salary
and which type of student loan plan you have.

There are three current student loan repayment plans in the UK:

Plan 1
Plan 2
Postgraduate

Each of these plans has a threshold for your weekly/monthly income.

Plan 1

If you started university before the 1st September 2012, or your loan is from the student
finance agencies in Northern Ireland or Scotland, you have a Plan 1 loan.
This plan means you are required to pay 9% on everything you earn over the threshold of
£372 a week or £1,615 a month (before tax and other deductions).

Plan 2

If your course commenced after the 1st September 2012 and you have a loan from
student finance in England or Wales, you have a Plan 2 loan.

This plan means you are required to pay 9% on everything you earn over the threshold of
£511 a week or £2,214 a month (before tax and other deductions).

These thresholds change on 6th April each year.

Postgraduate

You have a postgraduate loan repayment plan if you are an English or Welsh student who
took out a Postgraduate Master’s Loan on or after 1 August 2016 or a Postgraduate
Doctoral Loan on or after 1 August 2018.

Student loans for postgraduate study were only introduced in 2016.

This plan means you are required to pay 6% on everything you earn over a threshold of
£404 a week or £1,750 a month (before tax and other deductions).

Note that the interest rates for each loan plan differ greatly.

If you took out a student loan before September 1998, you would have a ‘mortgage-style’
loan repayable over a fixed number of instalments.

Pension
A workplace pension is arranged by your employer. A percentage of pay is automatically
put into the pension scheme every time you are paid. Your employer is also required to
make a monthly contribution on your behalf.

If you are paying towards a workplace pension, this contribution will be deducted from
your gross salary and will impact your take-home pay.

The amount that both you and your employer pay into the pension scheme depends on
the type of workplace pension scheme and whether enrolment was automatic or voluntary.

From April 2019, workplace pension contributions stand at 3% minimum contribution for
employers and 5% contribution for employees, resulting in an 8% total contribution.

In some schemes, your employer may pay more. You may also opt to pay in less.

You will need to know what kind of pension contributions you are making to calculate your
take-home salary.

Childcare Support

If you have one or more children and are eligible for and receiving childcare support, this
will impact your take-home pay.

There are various types of childcare support that have been available in the UK:

Tax-Free Childcare
Child Tax Credit (replaced by Universal Credit for most people)
Childcare vouchers

Which scheme you are signed up for will depend on when you applied and your individual
circumstances.
It is important to remember to factor any child allowance into your calculations for your
take-home salary.

Workplace Benefits

Workplace benefits, such as healthcare or a company car, can affect your tax code and
therefore your deductions and net salary.

If you are repaying a season-ticket loan or a cycle-to-work scheme loan this will impact
your take-home pay as well.

Also, quite obviously, any bonuses, commission or overtime will impact the overall
amount you receive.

Receipt of expenses, which are sometimes paid alongside your salary on payroll, will also
impact your net earnings. These are, however, non-taxable.

Any other deductions, like trade union subscriptions, charitable donations (as part of the
give-as-you-earn scheme), court orders (for unpaid fines or debt repayments to creditors)
or child maintenance (taken by a Deduction from Earnings Order by the Child
Maintenance Service) will also need to be factored in.

Any taxable benefits or cash allowances will also need consideration in your
calculation.

Finally, in the circumstances that warrant them, maternity, paternity, adoption or sick
pay also impact your net salary.
How to Calculate Your Take-Home Salary UK

How to Calculate Your Take-Home Salary UK

How to Calculate Your Take-Home Salary

To calculate your take-home salary, you will need to consider all the potential influencing
factors outlined above. Work through the variables step-by-step in a logical order.

Below is an example of the stages to work through to calculate your net pay, with an
example salary and personal circumstances.

Example:

Salary received = £29,000

Deductions:
 Tax code 1250L
Class I National Insurance contributions
Plan 2 student loan
No postgraduate loan
5% pension contribution (auto-enrolment scheme)
No dependents
No season-ticket loan
No company car
Not in receipt of bonuses

Calculation Process:

Step 1

First, break down your gross salary. This will help to compare the difference in salary
across different time frames once your calculation is complete.

The example annual gross salary of £29,000 breaks down into gross earnings of:

£2,416.67 a month
£557.69 a week

Step 2

Next, consider your non-taxable pension deductions and calculate the amount you are
paying into your scheme.

The amount your employer pays into your pension is not important for this calculation.

A 5% employee pension contribution for a salary of £29,000 is £1,450 a year, £120.83 a

month or £27.88 a week.

Step 3
Next, locate your tax code. Use this to work out your taxable income and then apply tax at
20% to calculate the necessary deduction for tax.

For this example, the individual has one job and falls under tax code 1250L.

The tax-free allowance for 2020/21 is £12,509.

Therefore, for a salary of £29,000, the taxable income is £15,041.

20% tax on £15,041 = £3,008.20

This means a tax payment of £3,008.20 yearly, £250.68 monthly or £57.85 weekly.

Step 4

The next step is to calculate your National Insurance contributions. Find the earning
threshold for your circumstances.

The primary threshold is £792 for 2020/21. This is the point at which employees begin to
pay National Insurance contributions at a rate of 12%.

For an individual paying Class I contributions on £2,416.67 gross salary a month (the
equivalent of £29,000 yearly), the earnings threshold is 12% on pay above £792.

£2,416.67 – £792 = £1,624.67

12% of £1,624.67 = £194.96 NIC per month

National Insurance contributions are therefore £2,339.52 annually, £194.96 monthly or

£44.99 weekly.
Step 5

Next, consider your student loan repayments. Your plan will dictate the rate at which you
are paying back your undergraduate loan, so make sure you know which plan you are on.

The individual in the example started university in September 2012 and therefore has a
Plan 2 student loan.

A Plan 2 loan repayment scheme means they pay 9% on everything earned over the
threshold of £2,214 a month or £511 a week (before tax and other deductions).

They earn £2,416.67 gross salary a month.

£2,416.67 – £2,214 = £202.67

They therefore pay 9% on the £202.67 they earn over the threshold.

9% of £202.67 = £18.24 student loan repayment per month.

For this example, repayment on the Plan 2 student loan is £218.88 annually, £18.24
monthly or £4.21 weekly.

Step 6

Double-check you have considered all the variables that apply to you and completed the
appropriate calculation for each.

If so, you are ready to take away your accumulated deductions from your total gross pay.
The individual in the example has no further deductions or allowances to consider.

Therefore, for a gross annual salary of £29,000:

They receive £2,416.67 gross salary per month

They pay 5% pension contribution = £120.83 a month
They pay 20% tax on their taxable income = £250.68 a month
They pay Class I National Insurance contributions = £194.96 a month
They are on a Plan 2 student loan repayment scheme = £18.24 a month

Total deductions = £584.71 a month.

£2,416.67 (gross monthly salary) – £584.71 (salary deductions) = £1,831.96 a month.

Step 7

Finally, summarise your calculations so you can easily return to them for future reference.

For the example given, this means that for a gross monthly salary of £2,416.67:

The monthly take-home pay is £1,831.96.

For a yearly comparison, a gross annual salary of £29,000 results in annual take-
home pay of £21,983.52.
For a weekly comparison, a gross weekly salary of £557.69 results in weekly take-
home pay of £422.76.

Final Thoughts

Considering all the factors that influence your pay – then gathering all the relevant
information and working out the thresholds that apply to you – can be time-consuming.

Breaking down your mandatory and voluntary salary deductions to calculate your take-
home pay is, however, crucial to understanding the true amount of money you are earning
(or would earn) on a particular salary.

Knowing your take-home salary allows you to calculate your disposable income after
factoring personal expenses. You can then spend or budget accordingly to reach your
saving goals.

All the information regarding the figures for your gross salary, deductions and take-home
salary should be present on your payslips if you are employed and in-role.

It is, however, very useful to know how each figure is calculated. It enables you to double-
check the figures cited are correct and that you are receiving the salary you are entitled to.

If you are searching for a job, being able to calculate the take-home salary for different
levels of remuneration will help you to make an informed judgement about each salary’s
financial viability.

Calculating your take-home pay may seem like a rather dull financial task, but dusting off
your mathematical brain will pay dividends through the new understanding you will gain
about your earnings.