A £5,000 pay rise doesn’t mean £5,000 more in your pocket. After income tax and NI deductions, the actual increase in your take-home pay is considerably less — and depends entirely on which tax band the extra income falls into.
Marginal Tax Rates
A basic rate taxpayer (earning £12,571–£50,270) keeps about 72p per extra £1 after 20% tax and 8% NI. A higher rate taxpayer (£50,271–£125,140) keeps only about 52p per extra £1 after 40% tax and 2% NI.
Watch for Tax Traps
The biggest trap is the £100,000–£125,140 range where your personal allowance is tapered. In this range, your effective marginal rate can exceed 60%, meaning you keep less than 40p of every additional £1 earned. A pay rise in this range can feel disappointingly small.