Start with your gross salary.
The basics
01
Your gross salary is the figure on your contract — before any tax, NI, pension or student loan comes off. The number you brag about at parties, not the number actually in your bank account.
If you tick "5% pension", we subtract that first — pension contributions normally come out before tax is calculated, so they reduce your taxable income.
# If pension is on
taxable_income = gross_salary − pension_contribution
taxable_income = gross_salary − pension_contribution
02
Apply the income tax bands.
The basics
The first £12,570 you earn is your personal allowance — completely tax-free. Everything above it is taxed in three bands:
£0 – £12,570
0% · personal allowance
£12,571 – £50,270
20% · basic rate
£50,271 – £125,140
40% · higher rate
£125,141 +
45% · additional rate
# Worked example: £40,000 salary
taxable = 40,000 − 12,570 = 27,430
income_tax = 27,430 × 0.20 = £5,486
taxable = 40,000 − 12,570 = 27,430
income_tax = 27,430 × 0.20 = £5,486
Tick Scotland and we swap in Scottish rates — six bands ranging from 19% (starter) up to 48% (top rate above £125,140).
03
Add National Insurance.
The basics
NI runs on its own thresholds, separate from income tax. For most employees in 2026/27 (Class 1):
£0 – £12,570
0%
£12,571 – £50,270
8%
£50,271 +
2%
Yes, the rate drops at higher incomes — that's why someone on £200k pays a lower marginal NI rate than someone on £40k. UK tax design is, to put it politely, eccentric.
04
Optionally, student loan.
The basics
If you tick the student loan chip we apply Plan 2 rates — most common for English & Welsh graduates from 2012 onwards. You pay 9% of everything you earn above £27,295.
# Salary £40,000, Plan 2
loan = (40,000 − 27,295) × 0.09 = £1,143
loan = (40,000 − 27,295) × 0.09 = £1,143
Plans 1, 4, 5 and postgraduate loans use different thresholds. We don't model those yet — coming soon.
05
Subtract everything.
The basics
What's left is your take-home pay. Then we just divide by 12 or 52 if you wanted monthly or weekly figures.
take_home = gross − income_tax − NI − student_loan − pension
06
Tax codes — 1257L, K475, BR…
Advanced · in the calculator's expandable section
Your tax code tells your employer how much tax-free allowance you get. The most common is 1257L — the number is your allowance ÷ 10, so 1257 means £12,570. The letter modifies how it's applied.
If you enter a code, we use it to override the default allowance. Here's what we recognise:
1257L
Standard. Full £12,570 personal allowance.
580T, 1185L
Reduced allowance. Number × 10 is your allowance (£5,800 / £11,850).
1383M / 1131N
Marriage allowance. M = received transfer (allowance up to £13,830). N = transferred to partner (down to £11,310).
K475, K100…
Negative allowance. K475 means £4,750 is added to your taxable income (typically for benefits-in-kind that exceed your PA, or underpaid tax from a previous year).
BR
Basic rate on everything. Used for second jobs — no PA applied, all income taxed at 20%.
D0 / D1
40% / 45% on everything. Same idea as BR but for higher / additional rate.
0T
No personal allowance. Common when you start a new job and HMRC doesn't have your details yet.
NT
No tax. For non-residents or special HMRC arrangements.
S1257L / C1257L
Country prefix. S = Scottish rates; C = Welsh (currently same as England).
… W1, M1, X
Emergency suffix. Non-cumulative — each pay period taxed in isolation. We treat these as the underlying code, since the cumulative result is what matters annually.
⚠ The 50% K-code cap
By law, PAYE deductions under a K code can't exceed 50% of your gross pay in any pay period. We apply this cap automatically, so an extreme K code on a small salary won't show absurd results.
07
Dividend tax — for directors & investors.
Advanced · self-employed mode only
If you're a limited company director paying yourself via dividends (or you hold shares outside an ISA), dividends sit on top of your other taxable income and get their own rates.
Two allowances combine before any dividend tax kicks in: any unused personal allowance (£12,570 less anything your salary uses) plus a separate £500 dividend allowance. Above that:
Within basic rate band
10.75%
Within higher rate band
35.75%
Within additional rate band
39.35%
Note these are the April 2026 rates — the basic and higher rates were both increased by 2 percentage points in the 2025 Autumn Budget.
# Director on £12,570 salary + £40,000 dividends
salary_tax = 0 (salary uses entire PA)
pa_left = max(0, 12,570 − 12,570) = 0
taxable_div = 40,000 − 0 − 500 = 39,500
# Stack on top of salary, see which bands
basic_room = 50,270 − 13,070 = 37,200
in_basic = 37,200 × 0.1075 = £3,999
in_higher = 2,300 × 0.3575 = £822
total_div_tax = £4,821
salary_tax = 0 (salary uses entire PA)
pa_left = max(0, 12,570 − 12,570) = 0
taxable_div = 40,000 − 0 − 500 = 39,500
# Stack on top of salary, see which bands
basic_room = 50,270 − 13,070 = 37,200
in_basic = 37,200 × 0.1075 = £3,999
in_higher = 2,300 × 0.3575 = £822
total_div_tax = £4,821
One nice quirk: dividends aren't subject to National Insurance, which is why the salary-plus-dividends combo has historically been popular for company directors.
08
Self-employed? Class 4 NI applies.
Advanced · sole traders & partners
Toggle Self-employed at the top of the calculator and the salary field becomes "Trading profit (after expenses)" — that's your business income minus allowable costs.
Income tax works the same way as employees (same bands, same personal allowance). What changes is National Insurance: you pay Class 4 NI instead of Class 1, at slightly lower rates:
£0 – £12,570
0%
£12,571 – £50,270
6% · Class 4 main
£50,271 +
2% · Class 4 upper
# Sole trader, £40,000 profit
income_tax = (40,000 − 12,570) × 0.20 = £5,486
class_4_ni = (40,000 − 12,570) × 0.06 = £1,646
take_home = 40,000 − 5,486 − 1,646 = £32,868
income_tax = (40,000 − 12,570) × 0.20 = £5,486
class_4_ni = (40,000 − 12,570) × 0.06 = £1,646
take_home = 40,000 − 5,486 − 1,646 = £32,868
We don't model Class 2 NI (the small flat-rate weekly contribution) since it's now voluntary for most sole traders below the small profits threshold and represents roughly £180 a year if paid voluntarily.
09
The £100k tax trap.
Advanced · automatic for high earners
Once your total income passes £100,000, your personal allowance starts tapering away — you lose £1 of allowance for every £2 you earn above £100k. By the time you hit £125,140, the entire £12,570 PA is gone.
# Effective PA at any income
if income > 100,000:
reduction = (income − 100,000) ÷ 2
effective_PA = max(0, 12,570 − reduction)
if income > 100,000:
reduction = (income − 100,000) ÷ 2
effective_PA = max(0, 12,570 − reduction)
Because you're losing tax-free allowance and being taxed at the higher rate on every extra pound, the effective marginal tax rate between £100k and £125,140 is 60% — sometimes called the "60% tax trap." Add NI and student loan and it can creep north of 70%.
↪ Why this matters
Many people in this band make additional pension contributions or salary sacrifice arrangements specifically to bring their adjusted income back below £100k. The tax saving can be enormous — every £100 of pension contribution in this zone effectively costs you about £40.
The calculator applies this taper automatically based on your gross salary plus any dividends — no toggle needed.