£40,000 salary breakdown
On a £40,000 gross salary, you'll pay:
- Income Tax: £5,486 per year (£457 per month)
- National Insurance: £3,164 per year (£264 per month)
- Annual take-home: £31,350 (£2,613 per month)
£45,000 salary breakdown
On a £45,000 gross salary, you'll pay:
- Income Tax: £6,486 per year (£540 per month)
- National Insurance: £3,564 per year (£297 per month)
- Annual take-home: £34,950 (£2,913 per month)
The real difference
While your gross salary increases by £5,000, your actual take-home pay increases by £3,600 per year, or £300 per month. That's because you'll pay an extra £1,000 in income tax and £400 in National Insurance on that additional £5,000.
In percentage terms, you keep 72% of the salary increase. This is because both salaries fall within the basic rate tax band (20%), plus you pay 8% National Insurance on the additional earnings.
Is it worth it?
Absolutely! An extra £300 per month (£3,600 per year) is significant. That could cover:
- Your annual ISA contribution (£3,600 is a great start towards the £20,000 limit)
- Additional pension contributions for better retirement savings
- Mortgage overpayments to reduce your term by several years
- A nice holiday or emergency fund contribution
Other factors to consider
Remember that a higher salary can also affect:
- Student loan repayments: You'll pay an extra £450/year if you're on Plan 2
- Pension contributions: If you contribute a percentage of your salary, this will increase too (but so will employer contributions!)
- Mortgage affordability: A higher salary could help you qualify for a larger mortgage
- Benefits: Some means-tested benefits may be affected
Calculate your own comparison
Everyone's situation is different. Factors like pension contributions, childcare vouchers, and other salary sacrifice schemes can all affect the final numbers. Use our calculator to compare any two salaries and see the exact difference for your circumstances.