In this guide, you’ll learn what take-home pay is, why understanding it can help you create a budget, and how you can calculate your earnings.

What is take-home pay?

Take-home pay is the amount you earn after things like income tax, National Insurance, and pension contributions are taken from your salary. You may also have to think about factors such as student loan repayments and company benefits like medical insurance.

Why is it important to know your take-home pay?

Knowing your take-home pay can help you budget, which is especially important if you’re living on a squeezed income. Once you know your take-home pay, you can calculate how much you have for essentials like your: 

• rent or mortgage
• bills 
• and groceries. 

This can also help you work out how much you can afford to save for big expenses like weddings and birthdays. Knowing your take-home pay also helps ensure you’re being paid the correct amount.

How much income tax is deducted from my salary?

Income tax bands determine how much tax you pay based on your earnings. The more you earn, the more you pay. Tax rates are marginal, so if you are a higher rate tax payer, you won’t pay increased tax on your whole salary, just the part that is over the limit.

HM Revenue & Customs (HMRC) collects tax using a system called Pay As You Earn (PAYE). With PAYE, tax is typically deducted automatically from wages and pensions. 

If you’re employed, your payslip should show your earnings before and after any deductions. For a full explanation, read the guide to how the PAYE system works.

If you’re self-employed, you cannot use the PAYE system and will need to complete an annual Self Assessment tax return. This helps HMRC calculate how much tax you owe. You can estimate how much Income Tax you should pay for the current year using GOV.UK’s self-employed tax calculator.

How much National Insurance is deducted from my salary?

You pay National Insurance contributions to qualify for certain benefits, including the State Pension and Jobseeker’s Allowance. If you have an employer, you’ll pay Class 1 National Insurance. The amount you’ll pay depends on how much you earn: 

For example, if you earn £1,000 a week, you pay:

• nothing on the first £242
• 8% (£58) on the next £725 
• 2% (66p) on the next £33.

This is calculated each time you get paid, so you could pay different amounts if your pay changes each time. You stop paying National Insurance when you reach State Pension age. If you’re self-employed, your National Insurance contributions depend on your trading profits. Here’s how it works: 

Class 2 contributions: 

If your profits are £6,725 or less a year, you don’t have to pay anything, but you can choose to pay voluntary Class 2 contributions. The Class 2 rate for 2024-25 is £3.45 a week.

Class 4 contributions:

If your profits exceed £12,570 a year, you must pay Class 4 contributions.  For the 2024-2025 tax year, you’ll pay: 

• 6% of profits from £12,570 up to £50,270
• 2% on profits over £50,270.

Most people pay Class 2 and Class 4 National Insurance through Self Assessment. 

How much does my student loan take from my salary?

Your student loans are usually repaid directly from your payslip once you start earning a certain amount of money.  How much your student loan affects your take-home pay depends on your income and repayment plan. 

For example, if you have a Plan 1 student loan, you’ll only repay when your income is over £480 a week, £2,082 a month, or £24,990 a year. 

Deductions should stop once you’ve paid off your student loan. Visit GOV.UK to learn which repayment plan you’re on.

How much do pension contributions affect my take-home pay?

If you have a workplace pension, your employer deducts your pension contribution from your pay before tax. As a result, your tax bill is usually lower. For most people, the minimum total pension contribution under automatic enrolment is 8%. Your employer must also contribute a minimum amount; in most cases, this is 3%.

For example, if you pay 3% of your basic pay and your employer pays 4%, you will get 1% as tax relief from the government – resulting in a total of 8%.

Some employers match your pension contributions, meaning you get double what you pay. Contributing to your pension in this way is a great way to maximise your take-home pay.

How calculating take-home pay may be different if you’re self-employed

The process for calculating take-home pay can be trickier for self-employed people. If you’re self-employed, you are not paid through PAYE. You’re responsible for paying Income Tax and National Insurance on your earnings. 

The amount of tax you pay is the same percentage of your profits as it would be if you were employed. However, you usually don’t need to pay tax on business expenses for things like office, travel, and staff costs. 

For example, if your turnover is £50,000 and you claim £10,000 in allowable expenses, you only pay tax on the remaining £40,000.

To claim expenses, you need to file a Self Assessment Tax Return with HMRC. You will need to gather key information related to your income and expenses, including invoices and receipts. They then calculate what you owe based on your reported income so that you can pay your Self Assessment bill.

Your income and business expenses may vary from month to month or year to year, so good record-keeping is essential. This can help you track your profits and spending, which makes it easier to file tax returns and claim deductions.  You may find that seeking help from a financial adviser or accountant can simplify the process.

Tips for maximising your take-home pay

Increasing your pay can be challenging, but there are several ways to make more without getting a pay rise.

Changing your tax code

Your tax code determines how much you earn before paying tax. If your circumstances change, you might be paying too much tax and could benefit from changing your tax code. 

For example, if you get married, you might qualify for the Marriage Allowance, which could reduce your tax by up to £252 in the tax year.

Using salary sacrifice schemes

With salary sacrifice schemes, your pension contributions are made before you’re taxed. As a result, you typically pay less tax because your tax will be calculated based on a lower amount of UK earnings. 

Salary sacrifice is a tax-efficient way to make pension contributions. Learn more in our guide: Tax relief on pension contributions.

Claiming tax deductions

You might be able to claim tax deductions if you use your own money for things you need for work and are not reimbursed by your employer. This could include tax relief on the cost of your uniform, for example, overalls or safety boots. For more information, visit GOV.UK.

Use our calculators and tools

Understanding take-home pay is important if you’re living on a squeezed income. Learn how to manage your money more effectively with these easy-to-use calculators and tools.