Work out each deduction then subtract
- Start from gross pay, calculate each of the three deductions separately, then take all three off in one subtraction.
- The three use different thresholds, so they cannot be added into a single percentage and applied once.
- Gross pay itself may need working out first, by multiplying an hourly wage by the hours worked.
Income tax uses the allowance and the bands
- Take the Personal Allowance off the gross pay first, because the allowance is tax free.
- Charge what is left at 20% while it stays below £50,270, and only use the higher rates once it passes that.
- These rates and bands apply in England, Wales and Northern Ireland, since the Scottish Parliament sets its own income tax rates on earnings (Source: GOV.UK).
Example
- A worker earns a gross salary of £30,000 in the 2026/27 tax year (Source: GOV.UK).
Step 1: subtract the Personal Allowance to find the taxable income:
£30,000−£12,570=£17,430 \pounds30{,}000 - \pounds12{,}570 = \pounds17{,}430 £30,000−£12,570=£17,430Step 2: charge it at the basic rate, since it is all below £50,270:
20%×£17,430=£3,486 20\% \times \pounds17{,}430 = \pounds3{,}486 20%×£17,430=£3,486- The income tax is £3,486, which is well under 20% of the whole £30,000 because the allowance was untaxed.
National Insurance uses its own thresholds
- Charge 8% on the earnings between £12,570 and £50,270, and 2% on anything above the upper figure.
- For a salary inside the basic band this happens to use the same slice as income tax, but that is a coincidence of the thresholds rather than a rule.
Example
- The same £30,000 salary, using the 2026/27 National Insurance thresholds (Source: GOV.UK).
Step 1: find the earnings above the lower threshold:
£30,000−£12,570=£17,430 \pounds30{,}000 - \pounds12{,}570 = \pounds17{,}430 £30,000−£12,570=£17,430Step 2: charge that at 8%, since none of it is above £50,270:
8%×£17,430=£1,394.40 8\% \times \pounds17{,}430 = \pounds1{,}394.40 8%×£17,430=£1,394.40- National Insurance takes £1,394.40, which is a smaller deduction than income tax because the rate is lower.
Pension uses a band of qualifying earnings
- Take 5% of qualifying earnings, which are the earnings between £6,240 and £50,270, not 5% of the whole salary.
- Using the whole salary is the commonest error here, and it overstates the deduction every time.
- Part of that 5% comes back as tax relief in real life, so the pay packet drops by a little less, but a question that lists three deductions wants all three taken off the gross figure.
Example
- The same £30,000 salary, at the minimum employee contribution of 5% (Source: The Pensions Regulator).
Step 1: find the qualifying earnings:
£30,000−£6,240=£23,760 \pounds30{,}000 - \pounds6{,}240 = \pounds23{,}760 £30,000−£6,240=£23,760Step 2: take 5% of that figure:
5%×£23,760=£1,188 5\% \times \pounds23{,}760 = \pounds1{,}188 5%×£23,760=£1,188- The pension contribution is £1,188, against £1,500 if 5% had wrongly been applied to the whole salary.
Putting the three together gives net pay
- Add the three deductions, subtract the total from gross pay, and divide by 12 if a monthly figure is wanted.
Example
- Bringing together the three deductions calculated above on the £30,000 salary.
Step 1: add the deductions:
£3,486+£1,394.40+£1,188=£6,068.40 \pounds3{,}486 + \pounds1{,}394.40 + \pounds1{,}188 = \pounds6{,}068.40 £3,486+£1,394.40+£1,188=£6,068.40Step 2: subtract the total from gross pay:
£30,000−£6,068.40=£23,931.60 \pounds30{,}000 - \pounds6{,}068.40 = \pounds23{,}931.60 £30,000−£6,068.40=£23,931.60Step 3: divide by 12 for the monthly figure:
£23,931.6012=£1,994.30 \frac{\pounds23{,}931.60}{12} = \pounds1{,}994.30 12£23,931.60=£1,994.30- Net pay is £23,931.60 a year, about £1,994 a month, so roughly a fifth of the gross salary was deducted.
Checking a net pay answer looks right
- Check the deductions are smaller than the gross pay and that net pay is positive, since a negative answer means a threshold was ignored.
- Check the allowance was subtracted before any rate was applied, because that is where most marks are lost.
Exam technique
- Set the three deductions out separately and label each one, so the method is visible even if one figure is wrong.
- Use the thresholds given in the question rather than remembered ones, because the figures change from year to year.
Self review
- A worker earns £20,000. Calculate the income tax due in 2026/27.
- Calculate the National Insurance on a £20,000 salary.
- Calculate the 5% pension contribution on a £20,000 salary.
- Using those three answers, what is the net pay on £20,000?
- Why is it wrong to take 5% of the whole salary as the pension contribution?
