A £40,000 job does not pay £40,000. After income tax, National Insurance, pension auto-enrolment and possibly student loan, the money that lands in your account is typically 25–35% smaller. Understanding the gap is essential for comparing job offers, budgeting, and negotiating.
What Comes Out — In Order
- Pension (usually 5% of qualifying earnings) — taken first, reduces your taxable pay
- Income tax — 20%/40%/45% on the slices above £12,570
- National Insurance — 8% then 2%
- Student loan — 9% above your plan threshold (£29,385 for Plan 2)
The Percentage Trap
Deductions are not a flat rate, so comparing salaries by "roughly two-thirds" misleads. £25,000 keeps about 85% of gross; £60,000 keeps about 72%; £130,000 keeps barely 60%. A £10,000 rise at higher-rate level delivers only ~£5,800 of spendable money — worth knowing before you trade lifestyle for it.
Comparing Job Offers Properly
Always compare net monthly pay plus employer pension contribution. A £38,000 offer with 8% employer pension frequently beats a £40,000 offer with the 3% legal minimum — the pension gap is worth over £1,300/year of tax-free pay.