Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
For the 2026-27 tax year, employees pay Class 1 National Insurance at 8% on weekly earnings between £242.01 and £967 and at 2% above that, while employers pay 15% on everything above £96 a week [1]. Every one of those percentages is applied to a single figure on the payslip: NIable pay, the earnings HMRC treats as "remuneration or profit derived from an employment" [2].
NIable pay is not the same as gross pay, and it is not the same as taxable pay. Some payments that appear on a payslip carry no Class 1 liability at all, some benefits attract Class 1A instead, and some reductions agreed in a contract shrink the figure before National Insurance is ever calculated [3] [4].
The difference matters on every payrun. A payment wrongly left out of NIable pay understates both employee and employer contributions, and the shortfall surfaces later as an FPS correction, an HMRC enquiry or a penalty where reasonable care was not taken [5].
This guide sets out what counts as NIable pay, what is disregarded, how salary sacrifice, tips, expenses and termination payments are treated, how earnings periods work, and how the figure flows into RTI. Every National Insurance figure in the worked examples was computed by a payroll engine implementing HMRC's 2026-27 rules.
Key takeaways
- NIable pay is the gross pay on which Class 1 National Insurance is calculated; it includes salary, wages, bonuses, commission, overtime and statutory payments [2] [6].
- Most benefits in kind, such as a company car, do not attract Class 1 and are charged to Class 1A at 15% instead [4] [1].
- A valid salary sacrifice reduces NIable pay, because contributions are due only on the cash the employee actually receives [3].
- Tips paid directly by customers carry no National Insurance, but a mandatory service charge paid out through payroll always does [7].
- Contributions are worked out per earnings period, so a bonus or arrears payment is added to the pay of the period in which it is paid [8] [9].
What NIable pay means
NIable pay, sometimes written "NICable pay", is the amount of an employee's earnings in a pay period that is subject to Class 1 National Insurance contributions. It is the base on which the payroll applies the thresholds and rates for the employee's category letter.
The legal definition of earnings
Section 3(1) of the Social Security Contributions and Benefits Act 1992 says earnings include "any remuneration or profit derived from an employment" [2]. HMRC's National Insurance Manual explains that remuneration covers salaries, wages and other rewards such as bonuses, commission and tips, and that a payment must both be a personal benefit or gain to the employee and be derived from the employment [2].
Any payment made under the terms of a contract of employment is earnings, because it is remuneration for services [10]. To decide whether a payment is contractual, HMRC looks at the written contract, later variations, staff handbooks and notices, and for directors the company's articles of association [10].
Deemed earnings
Section 4 of the same Act brings in payments that would not otherwise be earnings. Statutory Sick Pay, Statutory Maternity, Paternity, Adoption, Shared Parental and Parental Bereavement Pay, and Statutory Neonatal Care Pay are all treated as earnings for Class 1 [6]. The manual instructs employers to add statutory payments to the employee's other earnings in the normal earnings period and calculate National Insurance on the total [11].
That rule has a direct effect on family pay. Statutory Maternity Pay after the first 6 weeks is paid at £194.32 a week or 90% of average weekly earnings if lower, and HMRC's employer guide confirms that tax and National Insurance must be deducted from it [12]. Statutory Sick Pay at £123.25 a week, or 80% of average weekly earnings if lower, is treated the same way [13] [11].
Payments that count as NIable pay
Most cash paid through payroll is NIable. HMRC's list of specific types of payment signposts the detailed treatment for each item, from bonuses to honoraria and subs [14]. The table summarises the most common items.
| Payment | Class 1 NIable? | HMRC reference |
|---|---|---|
| Salary and wages | Yes | NIM02040 |
| Bonuses and commission | Yes | NIM02070 |
| Overtime | Yes | NIM02265 |
| Holiday pay from the employer's own funds | Yes | NIM02200 |
| Arrears of pay | Yes, in the period paid | NIM02065 |
| SSP, SMP, SPP, SAP, ShPP, SPBP, SNCP | Yes | NIM02025 |
| Payment in lieu of notice (from 6 April 2018) | Yes | NIM02520 |
| Statutory redundancy pay | No | NIM02580 |
| Company car | No (Class 1A) | NIM02085 |
Sources: HMRC National Insurance Manual [14] [6].
Bonuses, commission and overtime
All bonuses made as a reward for services are included in gross pay for Class 1, including productivity bonuses, Christmas bonuses and completion bonuses [15]. Overtime follows the same rule: HMRC's instruction is to include all overtime pay in gross pay for Class 1 purposes [16].
Because contributions are worked out per earnings period, a bonus raises the National Insurance of the month in which it is paid. An employee on £2,500 a month with category letter A pays £116.16 in employee contributions and generates £312.45 of employer contributions [1]. In a month where a £500 bonus lifts NIable pay to £3,000, the figures rise to £156.16 and £387.45 [9].
Holiday pay, arrears and advances
Holiday pay paid from the employer's own resources follows the usual Class 1 rules [17]. Arrears, such as a backdated pay rise, are added to the other earnings of the period in which they are paid and assessed on the total [8].
An employee normally paid £1,800 a month pays £60.16 of employee National Insurance, with £207.45 due from the employer. If £1,000 of arrears is paid in the same month, NIable pay becomes £2,800 and the contributions rise to £140.16 and £357.45 [8] [1].
Advances, or "subs", depend on the pattern. Regular advances are treated like other regular earnings and included in gross pay when paid, while an occasional advance taken from regular pay is included when the employer pays the balance of the normal wage [18] [14].
Payments outside Class 1
Not every payment linked to a job is NIable pay. Some are disregarded entirely, some move to Class 1A, and some depend on how they are paid. Payroll software has to classify each pay element correctly before the threshold calculation runs.
Benefits in kind and Class 1A
HMRC states that "the provision of a company car is a benefit in kind and does not attract a Class 1 liability" [4]. Instead, the employer pays Class 1A on taxable benefits, at 15% for the period from 6 April 2026 to 5 April 2027 [1].
Class 1A is reported and paid separately from the monthly payroll figures. Employers must report the total Class 1A owed by 6 July after the tax year and pay it by 22 July, or 19 July by cheque [19]. Where benefits are payrolled, the employer still submits the P11D(b) even though no per-employee P11D is needed [20].
The table contrasts the two classes.
| Feature | Class 1 | Class 1A |
|---|---|---|
| Charged on | Cash earnings (NIable pay) | Taxable benefits in kind |
| Who pays | Employee and employer | Employer only |
| Employer rate | 15% | 15% |
| When paid | Each payrun via PAYE | Annually, by 22 July |
Sources: National Insurance rates [1] and HMRC deadlines [19].
Mileage and other expenses
Mileage allowance payments sit partly inside and partly outside NIable pay. The National Insurance qualifying amount is business miles multiplied by a rate per mile, which for cars and vans is 55p from 6 April 2026, and any excess paid above it is added to the employee's earnings for that period [21]. For income tax the approved amount falls to 25p a mile above 10,000 business miles, but the National Insurance rule uses a single rate for all business miles [22] [21].
Consider an employee on £2,500 a month who drives 1,000 business miles and is reimbursed at 60p a mile. The qualifying amount is £550, so the £50 excess is NIable, and NIable pay for the month becomes £2,550 [21]. Employee contributions rise to £120.16 and employer contributions to £319.95 [1].
Paying below the qualifying amount creates no National Insurance relief: there is no equivalent of Mileage Allowance Relief for Class 1, and the shortfall cannot be carried forward [21].
Tips, service charges and troncs
HMRC's E24 guidance draws the line on who allocates the money. Tips paid directly by customers to employees, with no employer involvement, carry no National Insurance, although income tax is still due [7]. A mandatory service charge paid out to staff always attracts National Insurance, however it is shared [7].
Where an independent troncmaster allocates tips and the employer plays no part, no National Insurance is due on the distributions, but the employer stays responsible for calculating and paying any contributions that do arise [7]. Electronic tipping does not change these principles; a third-party app is assessed against the same two disregard conditions [23].
| Tip arrangement | Class 1 NI due? |
|---|---|
| Cash handed directly to the employee | No |
| Card tips allocated by the employer | Yes, employee and employer |
| Mandatory service charge paid to staff | Yes, always |
| Independent tronc, troncmaster allocates | No |
| Third-party app, no employer involvement | No |
Source: HMRC E24 guidance [7] and NIM02926 [23].
Termination payments
Termination payments split by element. Statutory redundancy pay is disregarded in calculating earnings, and each part of a termination package has to be assessed separately [24]. Since 6 April 2018, a payment in lieu of notice is treated as Post Employment Notice Pay and is subject to Class 1 [25].
Above a threshold, compensatory awards move into Class 1A. HMRC's employer guide states that Class 1A is due in real time on termination awards above £30,000, at the secondary Class 1 rate in force on the payment date [26]. The same mechanism applies to sporting testimonials above £100,000 [26].
How salary sacrifice changes NIable pay
Salary sacrifice is the most common contractual way to reduce NIable pay. Where there is a formal agreement to give up the right to future earnings and the terms of employment are varied, no Class 1 liability arises on the amount given up [3].
How the reduction works
HMRC's own example converts part of an annual salary into childcare vouchers and confirms that contributions are then due only on the cash that remains [3]. The employer guide adds that cash pay must not fall below the National Minimum Wage, and that a lower average weekly earnings figure can remove entitlement to statutory payments [27].
Applied to a monthly payroll, an employee on £2,500 who sacrifices £150 a month into a pension has NIable pay of £2,350. Employee contributions fall to £104.16 and employer contributions to £289.95, compared with £116.16 and £312.45 without the arrangement [3] [1].
The cap on pension sacrifice from 6 April 2029
The government has announced that from 6 April 2029, earnings sacrificed for pension contributions above £2,000 in a tax year will become subject to Class 1 primary and secondary contributions [28]. The policy paper estimates that 7.7 million employees use pension salary sacrifice and that 3.3 million sacrifice more than £2,000 [28].
For payroll, that change means NIable pay will need a running annual total of sacrificed pension pay, with the excess over £2,000 added back into the Class 1 base. Design details are due in secondary legislation [28]. Systems built on an HMRC-recognised payroll API can model each sacrifice as a separate pay element, which makes that future split a configuration change rather than a rebuild.
Thresholds, categories and earnings periods
Once NIable pay is known, the payroll applies the thresholds for the earnings period and the rates for the employee's category letter. The weekly, monthly and annual thresholds for the 2026-27 tax year are shown below.
| Threshold | Weekly | Monthly | Annual |
|---|---|---|---|
| Secondary Threshold (employer) | £96 | £417 | £5,000 |
| Lower Earnings Limit | £129 | £559 | £6,708 |
| Primary Threshold (employee) | £242 | £1,048 | £12,570 |
| Upper Earnings Limit | £967 | £4,189 | £50,270 |
Source: National Insurance rates and categories [1] and HMRC's employer guide [26].
Earnings periods
For regular payments, "only the interval of payment matters", not the period the earnings cover [9]. An employee paid monthly has a monthly earnings period, and one paid twice a week has a weekly period with both payments aggregated [9]. HMRC's earnings period chapter covers the special cases, including additional payments, holiday pay and statutory payments [29].
Directors are the main exception. They use an annual earnings period regardless of how often they are paid, which is explained in the guide to employer National Insurance; HMRC's employer guide refers directors to its separate CA44 booklet [26].
Category letters
The same NIable pay produces different contributions under different letters. For category A, the employer pays 15% across every band above the secondary threshold; for category M (under 21), the employer rate is 0% up to £967 a week [1] [30].
HMRC's own example for a category A employee earning £1,000 a week gives employee contributions of £58.66, made up of £58 at 8% and £0.66 at 2% [1]. The employer contribution on the same pay is £135.60 [1].
How NIable pay is reported through RTI
Each Full Payment Submission carries the employee's NIable pay in the period and year to date for each category letter used, together with the contributions due. An HMRC-recognised payroll platform for SMEs builds those figures from the classified pay elements, so a wrongly coded element produces a wrong FPS.
Correcting mistakes
For the current tax year, an employer corrects year-to-date figures on the next regular FPS [5]. HMRC's National Insurance Manual states that inaccuracies in earnings or contributions should be corrected as soon as possible, on the next FPS or an additional FPS [32].
Penalties apply only where the employer did not take reasonable care or acted deliberately [5]. Where a whole category of payment has been miscoded, such as card tips allocated by the employer but treated as directly paid, the correction runs across every affected employee and period [7].
Employment Allowance
Employment Allowance reduces the employer's annual Class 1 liability, not the NIable pay itself. Eligible employers can reduce their secondary contributions by up to £10,500 each tax year [31]. The allowance is set against the employer contributions calculated from NIable pay, so the per-employee figures on the FPS are unchanged [31].
Practical controls for payroll teams
The classification of pay elements is where most NIable pay errors begin. Each element needs three flags: subject to PAYE, subject to Class 1, and reportable as a benefit. Bureaux running payroll for many clients typically hold a standard element library on a multi-client payroll dashboard so that tips, mileage and sacrifice codes are set up the same way for every employer.
Four checks catch the most common problems:
| Check | What to confirm | Reference |
|---|---|---|
| Service charges | Mandatory charges coded as NIable | E24 |
| Mileage | Excess over the qualifying amount added to NIable pay | NIM rules on mileage |
| Salary sacrifice | Signed contract variation before the pay period | NIM02330 |
| Statutory pay | SSP and family pay included with other earnings | NIM02355 |
Sources: E24 [7], HMRC mileage rules [21], NIM02330 [3] and NIM02355 [11].
Developers embedding payroll into an HR or ERP product can see how pay elements are classified in the Moonworkers API documentation, where each element carries its own tax and National Insurance treatment.
Check National Insurance on any salary
To see how a change in NIable pay alters employee and employer contributions, the Moonworkers UK salary calculator applies the 2026-27 PAYE and National Insurance rules to any gross figure and category letter.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category. If in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
NIable pay is the hinge of every Class 1 calculation. The thresholds and rates are published once a year, but the figure they apply to is assembled payrun by payrun from bonuses, overtime, statutory pay, sacrifice arrangements, tips and expenses, each with its own rule. Getting the classification right once, at element level, removes most of the risk downstream.
The rules will keep moving. The cap on pension salary sacrifice from 6 April 2029 adds an annual running total to a calculation that has always been period by period, and electronic tipping continues to test the line between employer allocation and independent distribution. Payroll built on clearly classified pay elements will absorb those changes with the least disruption.
FAQs
Is holiday pay NIable?
Yes. Holiday pay paid from the employer's own funds follows the usual Class 1 rules and is added to the earnings of the period in which it is paid [17]. The old disregard for multi-employer holiday stamp schemes was withdrawn after 30 October 2012, and HMRC's earnings period chapter covers holiday pay paid in advance or on leaving [29].
Are employer pension contributions part of NIable pay?
An employer contribution paid into a registered pension scheme is not cash received by the employee, so it does not form part of NIable pay; HMRC's employer guide confirms there is no employment income tax or National Insurance charge when a bonus is sacrificed into a pension [27]. Contributions deducted from the employee's own pay are different: only a formal salary sacrifice, which varies the contract before the pay is earned, takes the amount out of the Class 1 base [3].
Do expenses reimbursed at cost count as NIable pay?
A payment counts as earnings only where it is a personal gain derived from the employment, which is why genuine business costs reimbursed at cost are generally outside Class 1 [2]. Mileage is the main exception to watch: any amount paid above the National Insurance qualifying amount for the business miles in the period must be added to NIable pay [21].
Why is NIable pay different from taxable pay on a payslip?
The two figures follow different rules. Some benefits are taxed through payroll but charged to Class 1A rather than Class 1 [4], and a mileage excess over the approved amount can be reported on a P11D for tax while still being added to earnings for National Insurance [22]. A payslip therefore often shows two gross figures for the same period.
