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Gross salary vs net salary: what's the difference and how is take-home pay calculated?

Updated June 2026 8 min read

Quick verdict

Gross salary is the headline figure before deductions. Net salary is what reaches your bank after Income Tax, National Insurance, pension contributions, student loan repayments and other deductions.

Option A

Gross salary

Total pay before deductions, usually shown as annual salary in job offers and contracts.

Option B

Net salary

Take-home pay after payroll deductions, usually shown on your payslip as the amount paid to your bank.

Side-by-side comparison

Use gross salary to compare job offers and borrowing affordability, but use net salary for budgeting. The gap between the two depends on tax band, NI, pension contributions, student loan plan and salary sacrifice arrangements.

Before deductions

Gross salary

YesBetter

Net salary

No

Budgeting usefulness

Gross salary

Limited

Net salary

HighBetter

Job offer comparison

Gross salary

Best headline measureBetter

Net salary

Needs calculation

Includes tax impact

Gross salary

No

Net salary

YesBetter

Pension and student loan impact

Gross salary

Not reflected

Net salary

ReflectedBetter

Mortgage evidence

Gross salary

Often important

Net salary

Also reviewed

Pros and cons

Gross salary pros and cons

Pros

  • ✓Easy to compare offers
  • ✓Used in contracts
  • ✓Important for lending and pension percentages
  • ✓Shows earning level before choices

Cons

  • -Not what you can spend
  • -Ignores tax and NI
  • -Can overstate affordability
  • -Does not show deductions

Net salary pros and cons

Pros

  • ✓Shows real monthly pay
  • ✓Best for budgeting
  • ✓Includes tax and deductions
  • ✓Helps compare salary sacrifice effects

Cons

  • -Can vary by month
  • -Affected by personal deductions
  • -Harder to compare without context
  • -May hide gross earning power

Cost examples

Job offer

Compare gross salary first, then calculate net pay after tax, NI, pension and student loan deductions.

Use
Both

Monthly budget

Rent, bills and saving plans should be based on net pay, not headline salary.

Budget with
Net

Salary sacrifice

Gross pay may reduce, but net pay and benefits can improve depending on the arrangement.

Check
Payslip

When to choose Gross salary

  • ›You are comparing offers
  • ›You need contract salary
  • ›You are checking pension percentages
  • ›You are applying for borrowing
  • ›You want headline earning power

When to choose Net salary

  • ›You are planning a budget
  • ›You need monthly cash flow
  • ›You have student loans or pension deductions
  • ›You want to understand payslips
  • ›You are comparing take-home pay

Related calculators

Work & Income

UK Income Tax Calculator

Calculate estimated PAYE Income Tax, National Insurance and take-home pay.

Use calculator

FAQs

Why is my net pay lower than gross salary?

Payroll deductions such as Income Tax, National Insurance, pension contributions and student loans reduce take-home pay.

Is net salary monthly or annual?

It can be shown either way, but most people think of net salary as monthly take-home pay.

Does pension reduce net pay?

Yes, pension contributions reduce take-home pay, though tax relief can reduce the net cost.

Which figure should I use for budgeting?

Use net pay because it reflects the money actually available to spend or save.

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