Every UK payslip is a small maths exam you did not revise for. Your employer quotes a gross salary — say £50,000 — but HMRC and National Insurance take several bites before anything reaches your account. The size of each bite depends on where you live, your tax code, pension choices, student loans, and whether you crossed thresholds like £50,270 or £100,000 without noticing.
This guide walks through the full calculation chain for a typical PAYE employee in 2025/26 (6 April 2025 to 5 April 2026). It covers the personal allowance, Income Tax bands for England/Wales/Northern Ireland versus Scotland, employee National Insurance, the order deductions run in, and what the TaxBite calculator models compared with real payslip quirks. If you already have a payslip in hand, pair this with our payslip reading guide — this page explains the engine; that page labels the dials.
Start with gross — not “take-home”
Gross pay is your contractual earnings before statutory deductions. For a salaried employee it is usually your annual salary divided by twelve, plus any overtime, commission, or bonus lines in that pay period. Gross is what recruiters quote and what mortgage lenders ask about first. It is not what you spend.
From gross, payroll subtracts — in a fixed practical order — pension contributions (if salary sacrifice or net pay arrangement), Income Tax under PAYE, employee National Insurance, and student loan repayments where applicable. The remainder is net pay, also called take-home. Benefits-in-kind (company car, private medical) can affect your tax code without appearing as a cash deduction line; TaxBite focuses on cash salary paths unless you adjust settings manually.
The personal allowance — your tax-free slice
Most UK taxpayers get a personal allowance: income you can earn before Income Tax applies. For 2025/26 it is £12,570 — unchanged since 2021/22. That freeze is politically quiet but financially loud: as wages rise with inflation, a fixed allowance means more of your pay is taxed each year — a phenomenon called fiscal drag (see our 2025/26 tax year guide).
The allowance is usually spread evenly across the year via your tax code. Code 1257L tells payroll to apply £12,570 ÷ 10 = 1,257 “units” of tax-free pay. If your code is wrong — emergency BR, a K code, or a Scottish S prefix — the allowance may not apply the way you expect. Our tax codes guide covers those cases.
The £100k taper — when allowance shrinks
Earn above £100,000 and your personal allowance tapers: you lose £1 of allowance for every £2 over £100k until it reaches zero at £125,140. That creates an effective 60% marginal rate on a slice of income — Income Tax at 40% plus the hidden cost of losing allowance. We model this in detail in the £100k cliff guide. TaxBite applies the taper automatically when gross exceeds £100k.
Income Tax bands — England, Wales, and Northern Ireland
After personal allowance, taxable income is sliced into bands. For 2025/26 in England, Wales, and NI:
- Basic rate 20% — roughly on taxable income from £0 up to the basic band limit (gross roughly £12,571–£50,270)
- Higher rate 40% — on taxable income in the band up to £125,140 gross equivalent
- Additional rate 45% — on taxable income above that
Official tables: gov.uk/income-tax-rates. Wales sets its own rates in theory but for 2025/26 they mirror England for these bands. Northern Ireland follows the same structure.
Scotland — same allowance, different bands
Scotland sets its own Income Tax rates and bands. The personal allowance (£12,570) and £100k taper are UK-wide; NI rules are UK-wide too. Only Income Tax bands differ. Scottish 2025/26 bands include starter (19%), basic (20%), intermediate (21%), higher (42%), advanced (45%), and top (48%) — see our Scotland vs England comparison for side-by-side take-home at £30k–£100k.
A £50,000 salary in Edinburgh typically yields about £127/month less than Manchester (~£1,524/year) because Scotland’s 42% higher band starts much earlier than England’s 40% band. TaxBite switches bands when you select Scotland in the calculator.
Employee National Insurance — separate from Income Tax
National Insurance funds state pension and certain benefits. It is not Income Tax — different thresholds, different rates, calculated on gross earnings (with some pension nuances). For employees in 2025/26:
- 8% on earnings between £12,571 and £50,270 (primary threshold to upper earnings limit)
- 2% on earnings above £50,270
There is no NI on the first £12,570 of earnings (aligned with the personal allowance figure but calculated separately). Employer NI also exists — typically 15% on earnings above £5,000 from April 2025 — but that is paid by the company, not deducted from your payslip (though economists will argue you pay it indirectly).
Self-employed people pay Class 4 NI on profits at 6%/2% instead — see our self-employed NI guide.
Order of deductions — what runs first
On a typical monthly payslip the practical order is:
- Gross pay for the period (salary ÷ 12, plus variable items)
- Pension — salary sacrifice reduces gross before tax and NI; relief-at-source pensions do not reduce NI the same way
- Income Tax (PAYE) — calculated on taxable pay after pension, using cumulative year-to-date figures and your tax code
- Employee NI — on qualifying earnings for the period
- Student loan — Plan 1/2/4/5 and postgraduate loans above their thresholds (9% or 6% on the slice above threshold)
- Net pay — what lands in your bank
Student loans are calculated on gross above the plan threshold, not on “income after tax”. A £50k earner on Plan 2 pays 9% on earnings above £29,385 — about £1,855/year — on top of tax and NI. Our student loan guide has plan-by-plan numbers.
Worked example: £35,000 salary (England, 1257L, no pension or loan)
A straightforward mid-range salary shows how the pieces stack:
Effective “all-in” rate on gross: about 18% lost to tax and NI combined — not the 20% headline Income Tax rate, because NI and allowance both matter.
Worked example: £50,000 salary (England, 1257L)
The £50k figure appears everywhere because it sits just below the higher-rate threshold:
Income Tax: 20% × (£50,000 − £12,570) = 20% × £37,430 = £7,486. NI: 8% × £37,430 = £2,994. Combined bite: £10,480 (~21% of gross). Jump to the £50k salary table for a one-click view.
Worked example: £50,000 with 5% pension sacrifice and Plan 2 loan
Real payslips rarely match the “no extras” model. Add 5% salary sacrifice pension (£2,500/year) and Plan 2 student loan:
- Adjusted gross for tax/NI: £47,500
- Income Tax: 20% × (£47,500 − £12,570) ≈ £6,986
- NI: 8% × (£47,500 − £12,570) ≈ £2,794
- Student loan: 9% × (£50,000 − £29,385) ≈ £1,855 (loan uses pre-sacrifice gross for Plan 2)
- Pension: £2,500 to your pot (not “lost” — deferred)
- Take-home: roughly £33,865/year (~£2,822/month)
Pension sacrifice saves roughly £500/year in tax and NI compared with paying pension from net pay — see pension sacrifice guide for the full trade-off.
Worked example: £75,000 — crossing higher rate
At £75,000 you pay 40% on earnings above £50,270:
- Basic band tax: 20% × £37,700 ≈ £7,540
- Higher band tax: 40% × (£75,000 − £50,270) = 40% × £24,730 ≈ £9,892
- Total Income Tax: ≈ £17,432
- NI: 8% × £37,700 + 2% × (£75,000 − £50,270) ≈ £3,512
- Take-home: ≈ £54,056/year (~£4,505/month)
The marginal rate on the next £1,000 of salary is 42% (40% tax + 2% NI) — not 40% alone. That is why a £5k pay rise keeps less than £3k — see pay rise take-home.
What TaxBite models — and what it does not
TaxBite estimates PAYE take-home using the same 2025/26 thresholds as this guide: personal allowance with taper, England or Scotland Income Tax bands, employee NI at 8%/2%, optional student loan plans, pension sacrifice percentage, self-employed Class 4 NI, and tax code overrides (1257L, BR, D0, etc.).
TaxBite does model: annual gross salary, region, pension %, student loan plan, employment type (PAYE vs self-employed), tax code scenarios, and the £100k allowance taper.
TaxBite does not fully model: benefits-in-kind (company car BIK), childcare vouchers, attachment of earnings orders, multiple concurrent employments with split allowance, exact cumulative PAYE rounding per payroll software, or post-tax pension relief. Your employer’s payroll system may round pennies differently month to month.
Payslip reality adds: year-to-date cumulative tax (so a bonus month looks scary but may balance out), week-1/month-1 non-cumulative codes, emergency tax on job changes, and timing lags when HMRC updates codes. If your payslip says BR in month one, net pay can be ~£200/month lower until fixed — see emergency tax guide.
Marginal vs average rates — why headlines mislead
Your average rate is total tax + NI divided by gross — often 20–25% for a £50k employee. Your marginal rate is what the next £1,000 costs: typically 32% (20% + 8% NI) in the basic band, 42% in the higher band, or 60%+ in the £100k taper zone. Bonuses are taxed at marginal rates — our bonus tax guide explains why a £5k bonus does not “all go to tax” but does not all stay either.
Monthly vs annual thinking
UK tax is assessed annually but collected monthly through PAYE. Payroll compares year-to-date gross and tax paid against where you should be on your code. Start a job in October and your allowance is compressed into remaining months — not wrong, just lumpy. Leave mid-year and your P45 shows cumulative figures for the next employer. TaxBite shows smooth annual/monthly equivalents; payslips wobble around that line.
Sanity-check your number
Three quick checks before you argue with payroll:
- Confirm your tax code on the HMRC app — is it 1257L, S1257L, or something alarming?
- Compare gross on payslip to contract — pro-rata if you joined mid-month
- Run the same gross through TaxBite with matching pension, region, and loan settings — within ~£50/year is normal; £500/month gap means a code or benefit issue
Model your take-home in TaxBite
Enter your gross salary, pick England or Scotland, toggle student loan and pension, and compare scenarios before you negotiate or switch jobs.
Calculate your take-home →Reading a payslip → · Tax codes explained → · 2025/26 tax year →
Estimates only — not tax advice. Rates and thresholds can change; check gov.uk for official guidance. Benefits-in-kind, multiple jobs, and complex pension arrangements may differ from this simplified model.