Take home pay is the amount of money we actually receive from our wages or salary, after tax, pensions and other deductions have been made. It is important to know how to calculate take home pay because it tells us the amount of money we have coming in each week or month, so we can budget effectively.

Determine your gross annual salary; the total amount you will earn per year before deductions are made. Divide this by 52, to find your weekly pay. If this is between £110 and £844, divide it by 100 then multiply by 11 to find the amount of National Insurance you will pay. For pay over £844, subtract 844, divide by 100 and multiply by 12, then add £92.84 (which is 11% of £844) to find your contributions.

Multiply your national insurance contributions by 12 to find your total annual national insurance. Determine your monthly pension contributions, if any, and multiply this by 12 to find the amount you pay for your pension each year. Subtract this from your gross annual salary, then subtract your income tax “personal allowance” of £6,475, to determine your taxable income. The personal allowance is set by the Chancellor in the Budget and may therefore vary from year to year.

Deduct £37,400 from your taxable income unless your taxable income is lower than this amount. Divide the result by 100 and multiply it by 40. This is your higher rate of income tax. Calculate the basic rate by dividing the £37,400 you deducted earlier (or your total taxable income if it is lower than £37,400) by 100 and multiplying by 20.

Add the two income tax figures together (or just note down the basic rate of tax) to find your total income tax. Deduct your calculations for pension contributions, income tax payments and national insurance contributions from your gross annual salary. The result is the amount of salary you keep. Divide this by 12 to calculate your monthly take home pay, or by 52 to calculate take home pay per week.

#### Tip

If you have any agreements with your employer to deduct a portion of your wages each month, such as you contributions for the office tea club or any student loan repayments you may be required to make, be sure to deduct these amounts from the take home pay to calculated in Step 4, in order to make the calculation more accurate.

#### Warning

From April 2010, anyone earning over £150,000 per year will have an additional rate of income tax to pay. This rate is calculated at 50% for all earnings over £150,000 and should be factored in to your income tax calculations if your take home pay is to be entirely accurate.