When considering a new job offer, a pay rise or comparing your salary with a partner or colleague, looking at gross figures alone is misleading. A £5,000 pay increase doesn’t mean £5,000 more in your pocket — the actual difference depends on which tax bands the extra income falls into.
Why Net Pay Differences Aren’t Linear
UK income tax is progressive, meaning different portions of your income are taxed at different rates. Moving from £45,000 to £50,000 adds £5,000 gross but only around £3,600 net (after 20% tax and 8% NI). Moving from £50,000 to £55,000 adds the same gross amount but only around £2,900 net because the higher rate (40%) kicks in at £50,270.
The £100,000 Trap
Earning between £100,000 and £125,140 is particularly expensive due to the personal allowance taper. Your effective marginal tax rate in this range can exceed 60%, meaning a £10,000 gross increase may only yield around £3,800 extra take-home pay.