This guide is for UK employees who want to audit their own payslip — to understand exactly why a £40,000 salary lands in their bank account as roughly £2,450 a month, and to spot when something is wrong. It explains the mechanics of the PAYE system deduction by deduction. If you instead want to compare take-home pay across different salary levels or model a pay rise, the UK Salary Guide is the better starting point; this one stays focused on how the gross-to-net calculation actually works for a single salary.
What comes off your gross pay, in order
Your gross salary is the headline number in your contract. Between that and the cash that hits your account sit several deductions, and the order matters because some are calculated on different bases:
- Pension contributions — under auto-enrolment these are usually worked out on qualifying earnings (the band between £6,240 and £50,270), not your whole salary, unless your scheme uses a different definition.
- Income Tax — charged on salary above your Personal Allowance (£12,570 under the standard 1257L code), using progressive bands.
- National Insurance (Class 1) — charged on earnings above the Primary Threshold (£12,570), calculated per pay period rather than cumulatively.
- Student loan repayments — charged on earnings above your plan's threshold, behaving like a graduate tax.
- Other deductions — salary sacrifice benefits (Cycle to Work, childcare), union dues, or attachment orders.
The 2026/27 tax and NI bands (England, Wales, Northern Ireland)
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 – £50,270 | 20% |
| Higher rate | £50,271 – £125,140 | 40% |
| Additional rate | Above £125,140 | 45% |
Employee National Insurance is 8% on earnings between £12,570 and £50,270, then 2% above that. Scotland sets its own Income Tax bands (Starter, Basic, Intermediate, Higher, Advanced and Top), so Scottish residents will see different deductions — check GOV.UK: Scottish Income Tax.
A worked payslip: £40,000 in England
Assume a standard 1257L code, 5% auto-enrolment pension on qualifying earnings, and a Plan 2 student loan. Figures are rounded to the nearest pound per month.
- Gross pay: £40,000 ÷ 12 = £3,333/month
- Pension (5% of £33,760 qualifying earnings): £141/month
- Income Tax (20% of £27,430 taxable income): £457/month
- National Insurance (8% of £27,430): £183/month
- Student loan (9% of £12,705 above the Plan 2 threshold): £95/month
- Net take-home: ≈ £2,457/month
That is about 74% of gross. The key insight is the marginal rate: for every extra pound earned above £27,295, this person loses 20p tax + 8p NI + 9p student loan = 37p before any pension. Use the UK Salary Calculator to plug in your exact code, pension % and loan plan.
Reading your tax code
The code on your payslip tells your employer how much tax-free pay to give you. 1257L means £12,570 of allowance. Codes like BR (basic rate on everything), 0T (no allowance), or anything ending W1/M1 (emergency, non-cumulative) usually mean HMRC does not yet have your correct details — you may be overpaying. Check your code in the HMRC app or at GOV.UK: Check your Income Tax.
Common mistakes
- Treating the pension deduction as pure loss. Because contributions are taken before tax (or get relief at source), opting out of a £100 contribution typically raises take-home by only around £80 for a basic-rate payer — you give up £100 of pension to gain £80 of cash.
- Forgetting NI drops at £50,270. Crossing into higher-rate tax feels like a 20% jump, but NI simultaneously falls from 8% to 2%, so the real marginal increase is 14 percentage points, not 20.
- Ignoring a second job. Your allowance usually sits on your main job; a second job on a BR code is taxed at 20% from the first pound, which can cause over- or under-payment that HMRC reconciles later.
When to check with HMRC or payroll
Check promptly if you start a new job, get a bonus that lands you near a band boundary, change pension contributions, or see an unexpected code. Persistent, unexplained shortfalls are usually a code problem rather than a calculation error — your employer's payroll can only follow the code HMRC issues.
Assumptions and limitations
Figures use 2026/27 rates for England/Wales/NI and assume a standard tax code, no Scottish bands, no Marriage Allowance or blind person's allowance, and pension calculated on qualifying earnings. Your exact net pay depends on your code, your scheme's pensionable-earnings definition, and whether your employer uses salary sacrifice. For complex affairs (multiple incomes, benefits in kind, Scottish residency) speak to HMRC or an FCA-regulated adviser. This is educational estimation, not financial advice.
Written and maintained by Shaun da Silva, Finance Consultant. Learn how we ensure accuracy and quality in our Editorial Policy.