Are you a UK employee? If so, do you know how much money you will take home from your salary each month? In this article, we will provide tips on how to calculate your take-home pay using our take-home pay calculator.
We will also discuss income tax and National Insurance deductions, and provide a handy calculator to help you figure out your exact take-home pay.
7 August 2023 update: we updated our calculator to reflect up-to-date UK tax bracket thresholds.
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What is take-home pay?
Take-home pay is the amount of money you will receive from your salary each month, after income tax and National Insurance have been deducted. Sometimes there are also other deductions such as student loan repayments, pension contributions, or childcare vouchers (and may be more complicated if you’re a contractor or using an umbrella payroll company).
Working out your wage after tax is beneficial because it means you can budget more effectively and ensure that you have enough money to cover your essential costs.
Income tax and National Insurance explained
In the UK, income tax is deducted from your salary before you receive it under the PAYE scheme. The amount of tax you pay depends on how much money you earn each year. For example, if you earn less than £12,570 per year, you will not have to pay any income tax. If you earn between £12,571 and £50,270 per year, you will pay 20% income tax. And if you earn more than £50,271 per year, you will pay 40% income tax.
National Insurance is another deduction that is taken from your salary. National Insurance is a contribution towards the state pension and other benefits such as healthcare (the NHS). The amount you pay depends on how much money you earn each year.
For example, as of 2023, if you earn less than £12,570 per year, you will not have to pay any National Insurance. If you earn between £12,571 and £50,270 per year, you will pay 13.25% National Insurance. And if you earn more than £50,270 per year, you’ll pay 3.5% for earnings over that £50,270 threshold.
What is a tax code?
Your tax code is used to calculate how much income tax you will pay on your salary. The amount of income tax you pay depends on your individual circumstances.
You can find your tax code on your payslip. It is usually a letter followed by a number, for example, M0 or T1234.
If you are unsure of your tax code, you can contact HMRC for help.
What is the difference between income tax and National Insurance?
Income tax is used to fund the government, while National Insurance contributions are used to fund the National Health Service (NHS) and other public services in the UK.
How do I calculate my pay after tax?
To calculate your approximate take-home pay, you will need to know your annual gross salary. You can find this information on your payslip. Once you have this information, you can use our calculator to figure out your take-home pay.
Mathematical formula to work out income tax
If you want to know the exact amount of income tax you will pay on your salary, you can use the following mathematical formula:
Income Tax = (Gross Salary – Personal Allowance) x Tax Rate
For example, if your annual gross salary is £30,000 and your personal allowance is £12,570, your income tax would be calculated as follows:
Income Tax = (£30,000 – £12,570) x 20%
Income Tax = £17,430 x 20%
Income Tax = £3486
National Insurance contributions formula
The amount of National Insurance you pay is calculated using the following formula:
National Insurance Contributions = (Gross Salary – Primary Threshold) x National Insurance Rate
For example, if your annual gross salary is £30,000 and the primary threshold is £12,570, your National Insurance would be calculated as follows:
National Insurance Contributions = (£30,000 – £12,570) x 13.25%
National Insurance Contributions = £17,430 x 13.25%
National Insurance Contributions = £2309.48