You agree a salary, then your first payslip arrives and it's noticeably smaller than you expected. Where did the money go? In the UK, the gap between your gross salary (what you agreed) and your take-home pay (what hits your bank) comes down to two main deductions: Income Tax and National Insurance. This guide explains both for the 2026/27 tax year, in plain English, with a worked example you can follow.
Want the number first and the theory second? Run your figure through the Salary & Take-Home Pay Calculator and come back here to understand it.
The two deductions that shrink your salary
For a standard employee paid through PAYE (Pay As You Earn), almost all of the difference between gross and net pay is these two:
- Income Tax — paid to HMRC on most of your income above a tax-free allowance.
- National Insurance (NI) — a separate contribution that funds the State Pension and some benefits.
Pensions and student loans can also reduce your pay, but we'll set those aside to keep the core picture clear.
Step 1: Your Personal Allowance (the tax-free bit)
Everyone gets a Personal Allowance— an amount you can earn before paying any Income Tax. For 2026/27 it's £12,570. Earn less than that and you pay no Income Tax at all.
There's a catch for higher earners: once your income passes £100,000, your Personal Allowance shrinks by £1 for every £2 you earn above that line, disappearing entirely at £125,140. More on why that matters below.
Step 2: The Income Tax bands
Income Tax in England, Wales and Northern Ireland is banded. You don't pay one rate on everything — you pay each rate only on the slice of income that falls inside its band. For 2026/27:
| 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 | Over £125,140 | 45% |
The key idea: a pay rise that pushes you into the higher-rate band does not mean all your income is suddenly taxed at 40%. Only the pounds above £50,270 are. Scotland uses a different, six-band system — see the Scottish Income Tax calculator if that's you.
Step 3: National Insurance
On top of Income Tax, employees pay Class 1 National Insurance. For 2026/27 the employee rates are:
- 0% on earnings up to £12,570.
- 8% on earnings between £12,570 and £50,270.
- 2% on earnings above £50,270.
NI is calculated on your earnings, separately from Income Tax. You can break it down with the National Insurance calculator.
A worked example: £35,000 salary
Let's put it together for someone earning £35,000 a year.
- Income Tax: the first £12,570 is tax-free. That leaves £22,430 taxed at 20% = £4,486.
- National Insurance: 8% on the £22,430 between £12,570 and £35,000 = £1,794.
- Total deductions: £4,486 + £1,794 = £6,280.
- Take-home pay: £35,000 − £6,280 = £28,720 a year, or about £2,393 a month.
That's an effective tax rate of roughly 18% — even though the person is a "20% taxpayer". The difference is the tax-free allowance dragging the average down.
The hidden 60% tax trap
Here's the quirk that surprises people most. Between £100,000 and £125,140, every extra £1 you earn does two things: it's taxed at 40%, and it removes 50p of your Personal Allowance, which is itself then taxed. The combined effect is an effective marginal rate of 60%. A pay rise into this band is often worth far less than it looks — and paying into a pension is a common way to step back below the line.
What this guide leaves out
To stay readable, the example above ignores a few things that can change your real payslip:
- Workplace pensions, especially salary sacrifice, which reduce both take-home and taxable pay.
- Student loan repayments (Plans 1, 2, 4, 5 and postgraduate), each with its own threshold.
- Non-standard tax codes like BR, 0T or K, which can change your tax dramatically.
For the headline number, the take-home calculator is the fastest way to see where you stand — and if you're weighing up a raise, the Tax Bracket Checker shows what each band actually costs.
The bottom line
UK take-home pay isn't random — it's a tax-free allowance, then banded Income Tax, then National Insurance layered on top. Once you see the slices, your payslip stops being a mystery. Bookmark the calculators you need, and remember: the figures here are estimates for general guidance, not personal advice. Always check your own tax code and circumstances.