£25,000 Take-Home Pay

Guide

How Much Will You Actually Take Home? A Guide to PAYE Tax in 2025/26

Most people know their salary. Far fewer know what actually lands in their bank account each month — and the gap between the two is often bigger than expected.

If you're on PAYE (Pay As You Earn), your employer deducts income tax and National Insurance directly from your wages before you see a penny. It happens automatically, which is convenient, but it also means most employees have only a vague sense of where their money goes. This guide explains exactly how it works, what you'll pay, and what you'll keep.

What Is PAYE?

PAYE is the system HMRC uses to collect income tax and National Insurance from employees. Rather than receiving your full salary and paying tax at the end of the year, your employer calculates and deducts the tax you owe each pay period and sends it directly to HMRC. By the time your pay hits your account, the government has already taken its share.

Almost every employee in the UK pays tax this way. If you have a second job, receive a company pension, or have other taxable income, PAYE handles those too — usually through an adjusted tax code.

Income Tax: How the Bands Work

Income tax in the UK is not a flat rate. You pay different rates on different portions of your income, which means earning more doesn't suddenly make your entire salary taxable at a higher rate. Here are the 2025/26 bands for England, Wales and Northern Ireland:

The personal allowance is the amount you can earn before paying any income tax at all. For most people in 2025/26, that's £12,570. If you earn less than this, you pay no income tax whatsoever.

Above the personal allowance, you pay 20% on earnings up to £50,270. If you earn more than that, you pay 40% on the portion above £50,270 — not on your entire salary. The additional rate of 45% only kicks in above £125,140, at which point your personal allowance is also fully withdrawn.

One thing many people miss: if you earn over £100,000, your personal allowance begins to taper away at a rate of £1 for every £2 you earn above that threshold. This creates an effective 60% marginal tax rate on earnings between £100,000 and £125,140 — one of the quirks of the UK tax system.

National Insurance: The Other Deduction

National Insurance (NI) is separate from income tax, but it comes out of the same payslip. As an employee in 2025/26, you pay:

• 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 a weekly or monthly basis rather than annually, which can occasionally produce slightly different results to annual calculations — but for most people the difference is negligible.

Your employer also pays NI on your behalf — currently 13.8% on earnings above £5,000 — but this doesn't come out of your salary. It's a cost to your employer, not you.

A Worked Example: £35,000 Salary

Let's take a salary of £35,000 and work through exactly what you keep.

Income tax:

• Personal allowance: £12,570 — taxed at 0%
• Remaining £22,430 falls entirely within the basic rate band — taxed at 20%
• Income tax due: £4,486

National Insurance:

• Earnings above £12,570: £22,430 — taxed at 8%
• NI due: £1,794

Total deductions: £6,280 Annual take-home: £28,720 Monthly take-home: £2,393 Weekly take-home: £552

Your effective tax rate — the percentage of your gross salary that goes in deductions — is 17.9%. Not the 20% basic rate, because the personal allowance and NI thresholds mean a portion of your income is untouched.

How Your Tax Code Affects Things

Your tax code tells your employer how much personal allowance to give you. The standard code for 2025/26 is 1257L — the 1257 multiplied by 10 gives you the £12,570 personal allowance, and the L means you're entitled to the standard allowance.

Different codes mean different things:

• BR — all income taxed at basic rate (20%), usually for a second job
• D0 — all income taxed at higher rate (40%)
• 0T — no personal allowance applied
• K codes — you have income that needs to be taxed that isn't covered by your salary (such as an untaxed company benefit)

If your tax code looks wrong, contact HMRC — it's surprisingly common for people to be on the wrong code and either overpay or underpay tax without realising.

Pension Contributions

If you contribute to a workplace pension via salary sacrifice, your pension contributions reduce your taxable income before income tax and NI are calculated. This is one of the most tax-efficient things you can do.

For example, on that £35,000 salary, contributing 5% to a pension (£1,750 per year) reduces your taxable income to £33,250. You'd pay income tax on £20,680 instead of £22,430, saving £350 in income tax and around £140 in NI — a total saving of roughly £490 per year, just from the tax efficiency of pension contributions.

Student Loan Repayments

Student loan repayments are collected through PAYE alongside tax and NI. The repayment thresholds for 2025/26 are:

You only repay on earnings above the threshold for your plan. On a £35,000 salary with a Plan 2 loan, you'd repay 9% of £7,705 (the amount above £27,295) — that's £693 per year, or £57.75 per month.

Scottish Income Tax

If you live in Scotland, you pay Scottish income tax rather than the standard UK rates. Scotland has six bands in 2025/26:

National Insurance is UK-wide and unaffected by where you live, so Scottish taxpayers pay the same NI as everyone else.

Frequently Asked Questions

Disclaimer: Wagewell provides estimates based on standard UK tax rates and is intended for general guidance only. Results may not reflect your exact tax position. Always consult a qualified accountant for personalised advice.