Knowing your take-home pay should be the start of any financial planning.

Without this figure, it is hard to make an accurate budget, plan for financial goals or even start paying off debt, as take-home pay tells you exactly how much money you will make and get to keep in the year.

That’s right – the salary advertised in your job role is not the amount you will actually receive. Below, we will explain how to work out your take-home pay via a step-by-step method and the difference between gross and net income.

What Is Take-Home Pay?

Take-home pay is the amount of your salary that actually goes to your bank account after taxes and National Insurance are taken off.

If a job role says you will get £32,000 per year gross salary, you shouldn’t budget with this figure. This is the amount you earn before deductions.

Instead, you must first deduct tax and NI payments and then work with that amount. Otherwise, you may accidentally budget for more than you can afford to spend.

Net Pay vs Gross Pay

Above, we mention the term “gross income”. But what does this mean?

Gross means the whole of the salary before any costs are taken away.

Similarly, you will also see “net income” used often. This describes how much you take home after taxes and NI deductions are taken off.

So, when planning for the future, you will want to work out your net pay and use this as an accurate starting point for budgeting and financial planning.

How Do I Find Out My Earnings After Taxes?

You can work out your take-home pay by using online calculators or by doing a few calculations yourself.

If you would rather use an automatic take-home pay calculator, the best options in the UK are the Salary Calculator or the Money Saving Expert income tax calculator.

Step-by-Step Guide

Want to calculate your after-tax income yourself? Here are the main steps you need to take:

  • Find your gross pay – This is your annual salary, or if you work hourly, you can multiply your hourly rate by how much you work in a year, e.g., £16/hour for a 40-hour week = £33,280 per year.
  • Calculate your income tax – You can estimate your annual income tax Using the latest UK tax brackets. You can find up-to-date information on the Gov UK website. For £33,280 this would currently be £4,142.
  • Add in National Insurance Contributions (NICs) – NICs are divided up into different classes depending on what you earn. For the example salary, you would have to pay £1,657.
  • Do the calculations – Once you have the three figures, take the tax and NICs from your gross pay. A salary of £33,280 minus £4,142 tax and £1,657 NICs would leave you with £27,481 take-home pay.

Do I Have To Save for Taxes?

In the UK, if your only source of income is from having a job, you generally do not need to save for taxes because your employer deducts them automatically through the PAYE (Pay As You Earn) system.

However, if you are self-employed or have a side hustle, you will need to separately save for tax and file a self-assessment tax return every year to declare your income to HMRC.

Final Thoughts

So, if you came here searching for “How much do I earn after tax?” we hope this quick guide has pointed you in the right direction.

Understanding your take-home pay is a must and you should always recalculate it whenever your income changes to budget your money accurately. If you don’t know yours yet, this is your sign to work out your net income today!

Learn more about budgeting and other personal finance topics on the Cash Asap blog.