FinanceCompass A UK guide to finance careers · for 16–18 · updated September 2026
Money

The salary is not the number.

Between a job advert and your bank account sit income tax, National Insurance, a student loan and a pension. Understanding those four is the difference between a starting salary and a plan.

01

What you actually take home

Move the salary. Everything below recalculates using the real 2026/27 rules — the same arithmetic HMRC does.

Take-home a year—after all deductions
A month—what lands in your account
Income tax—20% / 40% / 45% bands
National Insurance—8% then 2%
Student loan—9% above the threshold
Total deducted—of gross pay
  • Take-home
  • Income tax
  • National Insurance
  • Student loan

The first £12,570 is tax-free. After that you pay 20% up to £50,270, then 40%. National Insurance runs the other way — 8% in the middle band, dropping to 2% once you pass £50,270 — which is why the jump from £50,000 to £60,000 feels smaller than it should.

A graduate on Plan 5 also loses 9% of everything above £25,000. On a £45,000 salary that is £1,800 a year — more than most people budget for.

Personal allowance

£12,570 — tax-free, and withdrawn £1 for every £2 you earn above £100,000

Basic rate

20% on taxable income to £37,700

Higher rate

40% from there to £125,140

Additional rate

45% above £125,140

NI

8% between £12,570 and £50,270, then 2%

The 60% trap

Between £100,000 and £125,140 you lose £1 of tax-free allowance for every £2 earned. The effective rate on that band is about 60% — higher than anything paid by a millionaire. Slide the calculator through it and watch the take-home line flatten.

What this ignores

Pension contributions, salary sacrifice, benefits in kind and student loan Plan 1. Real payslips are messier. This is the arithmetic that accounts for the large majority of it.

These are 2026/27 rates. Thresholds change in the Budget and the tax year turns every April — check gov.uk before relying on any figure here for a real decision.

02

The student loan is a graduate tax

It behaves nothing like a bank loan, and understanding the difference changes whether university looks expensive.

You repay 9% of everything you earn above £25,000 on Plan 5 — the plan for anyone starting an English course from 2023. Not 9% of the whole salary; 9% of the excess. Earn £25,000 and you repay nothing at all.

Repayments stop if your income drops, and the balance is written off after 40 years regardless of how much is left. Most graduates never clear it. That makes the headline debt a poor guide to the real cost — what matters is the 9%, and how long you pay it.

It is also why the apprenticeship route is worth taking seriously on arithmetic alone: no fees, no 9%, and a salary from eighteen.

Salary

Above the £25,000 threshold

Repaid a year
£25,000

At the threshold

£0
£32,000

Typical accountancy or insurance start

£630
£45,000

Research or fund management

£1,800
£70,000

Banking or trading, year one

£4,050

Plan 5, 2026/27. Plan 2 (courses from 2012 to 2022) uses a £29,385 threshold and writes off after 30 years.

03

Where the first money goes

Four accounts do almost everything. The allowances are annual, they do not roll over, and one of them carries a government bonus with conditions attached.

Cash ISA

Savings where the interest is never taxed. The balance does not fall in nominal terms, which is why it is normally described alongside shorter-term plans — a deposit, a car, a gap year.

£20,000 a year
Stocks & shares ISA

The same tax shelter, holding investments instead of cash. The value falls as well as rises, so the amount taken out can be less than the amount paid in.

Shares the £20,000
Lifetime ISA

Open from 18. The government adds 25% to everything you put in — but only for a first home under £450,000, or from age 60. Take it out for anything else and you are charged 25% of the withdrawal, which costs you more than the bonus gave you.

£4,000 a year
£1,000 bonus
Workplace pension

From 22, an employer must enrol you and contribute. Total minimum contributions are 8% of qualifying earnings, at least 3% of it from the employer. Opting out stops the employer contribution as well as your own.

8% total
3% employer minimum

The Lifetime ISA bonus is a government top-up rather than an investment return: 25% added to what you pay in, capped at £1,000 a year. What it is not is unconditional — the money is tied to a first home under £450,000 or to age 60, and any other withdrawal is charged at 25%.

The pension point matters more than it sounds at seventeen. Money paid in at 22 has forty-odd years to compound; the same amount at 40 has twenty. That gap is not twice as much — it is several times as much.

Model it yourself
One number to remember

A workplace pension takes roughly 5% from you and adds at least 3% from your employer. Opting out raises take-home pay now and stops the employer contribution at the same time. The trade-off is access: pension money cannot normally be taken until 55, rising to 57 in 2028.

Order of operations

Personal finance guides usually discuss these in an order, because the amounts involved differ: credit-card interest typically runs well above savings rates, and an employer contribution only exists while you are enrolled. Which order fits a particular person depends on their own circumstances. MoneyHelper, the government-backed service, gives free guidance.