Understanding your take-home pay in the UK involves several components and calculations. Your final net pay is determined after various deductions from your gross salary, including Income Tax, National Insurance contributions, pension contributions, and other potential deductions like student loan repayments.
The Personal Allowance is the amount of income you can earn before paying any Income Tax. For the 2024/25 tax year, this remains at £12,570. This amount may be reduced if you earn over £100,000. For every £2 you earn above £100,000, your Personal Allowance is reduced by £1, meaning you'll have no Personal Allowance if you earn £125,140 or more.
Your tax code determines how much tax-free income you're entitled to in a tax year. The most common tax code for 2024/25 is 1257L, which represents the standard Personal Allowance of £12,570.
| Band | Taxable Income | Tax Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
National Insurance contributions (NICs) are based on your earnings and NIC category letter. The most common is category letter A, which applies to most employees. For 2024/25:
| Earnings (per year) | NIC Rate |
|---|---|
| Up to £12,570 | 0% |
| £12,571 to £50,270 | 10% |
| Over £50,270 | 2% |
Student loan repayments are calculated based on your plan type and income. The thresholds for 2024/25 are:
Under auto-enrollment, the minimum total contribution is 8% of your qualifying earnings, with employers contributing at least 3% and employees making up the remainder. Many employers offer more generous schemes. Pension contributions are usually deducted before tax, meaning you get tax relief at your highest marginal rate.
Bonuses and overtime pay are treated as additional income and are taxed at your marginal rate. This means they're added to your regular income and taxed according to which tax band they fall into. They're also subject to National Insurance contributions.
Salary sacrifice arrangements allow you to give up part of your salary in exchange for benefits, potentially reducing your tax and National Insurance liability. Common arrangements include:
Many workplace benefits are taxable and will appear on your P11D form. Common taxable benefits include:
Note: This information is based on the 2024/25 tax year. Tax rates, thresholds, and rules may change in future tax years. This guide is for information purposes only and should not be used as financial advice. For precise calculations and advice specific to your situation, please consult a qualified tax professional.