40k take home pay UK: what the salary leaves, and the contract rate that matches it

Reading a salary figure as a contractor

1. Take the employed net as the baseline. For any salary the deductions are the personal allowance, the Income Tax bands, employee National Insurance and, where they apply, student loan repayments and pension contributions. This site computes those from the statutory rates each year rather than from a remembered percentage.
2. Add what the employer was also paying. An employer funds National Insurance on your salary, a pension contribution, holiday and sick pay. None appears on your payslip and all of it disappears the day you contract, so a contract rate that merely matches your gross salary is a cut.
3. Convert the target into a rate. Divide the annual amount you need to bill by the days you expect to bill. Where the engagement is inside the rules and paid through an umbrella, the assignment rate has to be higher still, because employer National Insurance and the margin come out of it before your gross exists.
4. Check the figure against the tax steps. Take-home does not rise smoothly. Crossing into a higher band, losing the personal allowance as income climbs, and the thresholds where child benefit and student loan repayments start each put a step in the line, and a rate that lands just past one of them keeps less of the rise than it looks.
5. Then decide with both numbers in front of you. A permanent salary at a stated figure and a contract rate that matches it after billable weeks, employer costs and the route are comparable. Anything short of that is comparing a wage with a price, which is how a contract that pays more ends up leaving less.

Common questions

What is 40k take home pay in the UK?

It depends on the tax year, your tax code, your student loan plan and your pension contribution, which is why the figure on this site is computed from the statutory rates for the year rather than quoted from memory. Use the calculator and read the line-by-line deductions.

What day rate matches a 70k salary?

Take the salary, add the employer costs it came with, divide by the days you realistically expect to bill, then check the result against the status of the engagement. The answer is usually higher than contractors first assume, because the unbilled weeks do the damage.

Why does my take-home not rise evenly with my salary?

Because of the steps: the higher rate threshold, the withdrawal of the personal allowance at higher income, and the points at which student loan repayments and the child benefit charge begin. A rise that crosses one of them keeps less than the headline suggests.

Is 25k take home pay different for a contractor?

At that level the difference between routes is usually small and the administration of a limited company rarely pays for itself. An umbrella or employment is often the better answer, which is not the advice the market usually offers.

Take-home pay by jurisdiction

• Take-home pay in United Kingdom