What will my take-home pay be after tax and NI in 22/23?
What will my take-home pay be after tax and NI in 22/23?
If you are looking at a new job, planning the next stage of your career or you are just interested in making the most of the money you earn, you may ask yourself “What will my take-home pay be after tax and NI deductions?”. As with most aspects of our tax system, everyone will have slightly different circumstances - for example, you may be in receipt of benefits, you may have multiple income streams and different people will choose how much to pay into their pensions.
This article will look at the basics of take-home pay in England, Wales and Northern Ireland to give readers an idea of what the difference will be in take-home pay if you were to move into a different pay bracket.
What is gross salary?
Gross means the overall, total figure for something and your gross salary is the headline amount you will earn or is advertised for a position. For example, you might see job adverts for £35,000 or £54,000, both of which could be a gross annual salary. If you are paid monthly, your gross monthly salary would be £2,916.67 (£35k/12) and £4,500 (£54k/12) respectively.
In many cases though, the gross salary quoted doesn’t include things like overtime, bonuses, pension contributions or employee benefits like private healthcare. In such cases, it may be useful to know what the on-target earnings estimate is and also to get a picture of the gross package value to make it easier to compare. The pension contribution is likely to have the biggest impact on the gross package as, for example, a 12% employer contribution is worth significantly more than a 4% employer contribution.
What is take-home pay (also known as net pay and net salary)?
It would be great if the headline figure of our salaries was actually ours to keep at the end of the month, however, for most people, there are a number of items that must be deducted from a salary payment before it can be called take-home pay. Examples of deductions are income tax and National Insurance.
What can be deducted from my gross salary?
As mentioned above, to arrive at your net salary (take-home pay), a number of deductions must first be made. Items that can be deducted include:
Income Tax.
National Insurance.
Student Loan Repayments.
Pension Contributions.
Benefits such as Childcare Vouchers (out of the scope of this article).
What is income tax?
Income tax is collected by HRMC and the government uses this revenue to fund government spending programmes; anything from roads and the NHS to defence and overseas aid. Income tax is based on your annual income and the way it is collected and calculated varies, depending on whether you are self-employed (and pay taxes via self-assessment), or employed (and pay taxes via Pay As You Earn - PAYE), or both. In the UK, income tax is paid on most types of income and includes your salary, pension income and rent from investment properties and other types of taxable investment.
In many cases, individuals in the UK are entitled to a tax-free personal allowance (an amount of money that you can earn before you start to pay tax). You read all about the latest income tax rates and allowances for 2022/23 in this article.
What is National Insurance?
National Insurance (NI) is another payment that is collected by HMRC from those in employment and was originally established to fund illness and unemployment, with the scope eventually extended to provide retirement pensions and other benefits. To build your entitlement to a full state pension, you have to have made contributions for a set number of years through your working life. There are however a number of other means for those that are not working to accrue a valid year’s national insurance credit on their record, without actually contributing, such as being on certain benefits, if you have an illness or disability or are caring for a relative or child.
From 6 April 2022 to 5 April 2023 National Insurance contributions will increase by 1.25%, to enable additional funding for the NHS, health and social care in the UK.
The amount of National Insurance paid is worthy of a separate article itself as there are a number of classes and thresholds that apply. In addition, the threshold at which employees start to pay national insurance changes from July 2022.
What are Student Loan Repayments?
Student loan repayments are deducted from your monthly pay, in order to repay any student loans you may have accrued whilst in further education. As with National Insurance, the amount that will be deducted from your pay each month depends on several factors, including the type of repayment plan you are on and the associated earnings threshold.
What are Pension Contributions?
A pension contribution is a payment made each month into an investment account, with the purpose of providing an income in retirement. There are several different types of pension contribution that can be made, including:
Personal contributions: This is money you pay into your pension each month. If you are employed, this money will either be deducted from your gross salary before income tax and NI are deducted, or it will be deducted from your net salary following those deductions. Which method is used will depend on the type of workplace pension arrangement your employer has in place.
Employer contributions: This is money your employer pays into your pension, often in addition to any payments you make.
Third-party contributions: This is money someone other than you or your employer pays into your pension.
What will my take-home pay be in the UK in the 2022/23 tax year?
With all of these deductions in mind, it is useful to look at a number of examples to see the impact on gross salary and the resulting take-home pay. First, let’s set some assumptions so that each of the examples can be compared equally. The examples below are calculated:
Using the tax rates applicable to England, Wales and Northern Ireland - the rates are different in Scotland.
Assuming you are employed - self-employed tax calculations will differ.
Without any student loan deductions.
For someone aged under 65.
With an employee pension contribution of 4.5%.
With the tax rates and allowances for the financial year 2022/23.
Without any allowances for benefits or tax credits.
After the July 2022 National Insurance changes.
These figures have been prepared using the Money Saving Expert Income Tax Calculator. There are of course many different income and salary calculators out there that you can use.
Furthermore, these figures are provided as an example only and the purpose of comparing salaries and take-home pay. For a true calculation, you will need to check your tax code and speak to HMRC or an accountant or financial adviser.
What will my take-home pay be in the UK if I earn £20,000 in 2022/23?
With a gross annual salary of £20,000, your net take-home pay each month will be £1,401. You will have paid £109 in tax, £82 in National Insurance and £75 in pension contributions per month.
What will my take-home pay be in the UK if I earn £25,000 in 2022/23?
With a gross annual salary of £25,000, your net take-home pay each month will be £1,664 You will have paid £188 in tax, £137 in National Insurance and £94 in pension contributions.
What will my take-home pay be in the UK if I earn £30,000 in 2022/23?
With a gross annual salary of £30,000, your net take-home pay each month will be £1,927. You will have paid £268 in tax, £192 in National Insurance and £113 in pension contributions.
What will my take-home pay be in the UK if I earn £35,000 in 2022/23?
With a gross annual salary of £35,000, your net take-home pay each month will be £2,190. You will have paid £348 in tax, £248 in National Insurance and £131 in pension contributions.
What will my take-home pay be in the UK if I earn £40,000 in 2022/23?
With a gross annual salary of £40,000, your net take-home pay each month will be £2,453. You will have paid £427 in tax, £303 in National Insurance and £150 in pension contributions.
What will my take-home pay be in the UK if I earn £45,000 in 2022/23?
With a gross annual salary of £45,000, your net take-home pay each month will be £2,716. You will have paid £507 in tax, £358 in National Insurance and £169 in pension contributions.
What will my take-home pay be in the UK if I earn £50,000 in 2022/23?
With a gross annual salary of £50,000, your net take-home pay each month will be £2,980. You will have paid £586 in tax, £413 in National Insurance and £188 in pension contributions.
What will my take-home pay be in the UK if I earn £60,000 in 2022/23?
With a gross annual salary of £60,000, your net take-home pay each month will be £3,469. You will have paid £864 in tax, £443 in National Insurance and £225 in pension contributions.
What will my take-home pay be in the UK if I earn £70,000 in 2022/23?
With a gross annual salary of £70,000, your net take-home pay each month will be £3,919. You will have paid £1,182 in tax, £470 in National Insurance and £263 in pension contributions.
What will my take-home pay be in the UK if I earn £80,000 in 2022/23?
With a gross annual salary of £80,000, your net take-home pay each month will be £4,369. You will have paid £1,501 in tax, £497 in National Insurance and £300 in pension contributions.
What will my take-home pay be in the UK if I earn £90,000 in 2022/23?
With a gross annual salary of £90,000, your net take-home pay each month will be £4,820. You will have paid £1,819 in tax, £524 in National Insurance and £338 in pension contributions.
What will my take-home pay be in the UK if I earn £100,000 in 2022/23?
With a gross annual salary of £100,000, your net take-home pay each month will be £5,270. You will have paid £2,137.00 in tax, £551 in National Insurance and £375 in pension contributions.
What will my take-home pay be in the UK if I earn £125,000 in 2022/23?
With a gross annual salary of £125,000, your net take-home pay each month will be £6,073. You will have paid £3,256 in tax, £619 in National Insurance and £469 in pension contributions.
What will my take-home pay be in the UK if I earn £150,000 in 2022/23?
With a gross annual salary of £150,000, your net take-home pay each month will be £7,103. You will have paid £4,148 in tax, £686 in National Insurance and £563 in pension contributions.
What will my take-home pay be in the UK if I earn £200,000 in 2022/23?
With a gross annual salary of £200,000, your net take-home pay each month will be £9,185. You will have paid £5,910 in tax, £822 in National Insurance and £750 in pension contributions.
Conclusion.
As you can see, as the gross salaries increase, the amount of tax and National Insurance deducted becomes increasingly significant. For example, someone earning £40k pays £8,100 in tax and NI (just over 20%), whereas someone earning £20k pays just £2,292 (about 11.5%) - even though the gross salary has doubled, the deductions are closer to 3.5 times. Furthermore, someone earning £80,000 will pay £23,976 (30%) in tax and NI, which is nearly three times as much as someone earning half that amount (£40k) and over ten times the amount someone earning a quarter of their salary (£20k) would pay. For those earning over £125,140, they pay the most in tax and NI proportionate, as they will have lost their personal allowance at this level - so someone earning £150k will pay £58,008 (about 40%). This is a great illustration of how the various tax bands and personal allowances work and shift the overall burden of tax onto those earning the most.
What’s next?
If you need help or advice on your personal or business finances or if you want to make the most of your personal allowances and pension to reduce your tax burden, you can get in touch with one of our advisors for independent financial advice. We offer a free initial consultation and although we are based in Tunbridge Wells, we advise clients across the UK.
Don’t forget, this article offers information about tax rates and allowances and should not be taken as personal advice. Remember that investments and pensions can go up and down in value, so you could get back less than you put in. Tax rules can change and the benefits depend on individual circumstances.