Every April, the National Living Wage gets a bump. And every April, the same question comes up: how much of that increase will I actually see in my bank account? Because as anyone who has had a pay rise knows, the headline number and the reality can be quite different once HMRC has taken its share.
From April 2026, the National Living Wage for workers aged 21 and over is set to rise to £12.50 per hour, up from £12.21. That is an increase of 29p per hour, or around 2.4%. For a full-time worker doing 37.5 hours a week, that translates to a gross annual salary of roughly £24,375 — up from £23,810.
The Gross vs Net Reality
An extra £565 per year sounds helpful. But once you account for income tax and National Insurance, the picture changes. Let us walk through it.
At a salary of £24,375, you are within the basic rate tax band. After your personal allowance of £12,570, you pay 20% income tax on £11,805. You also pay 8% employee National Insurance on earnings above the primary threshold.
Of the £565 gross increase, approximately £158 will go to income tax (20% of the increase that falls within the taxable range) and around £45 to NI. That leaves you with roughly £362 extra per year, or about £30 per month.
Thirty pounds a month. Not nothing, but not life-changing either. You can see the exact breakdown for your hours and circumstances using our salary calculator or our hourly rate calculator.
What About Younger Workers?
The National Living Wage only applies to those aged 21 and over. Younger workers are covered by the National Minimum Wage, which also rises in April 2026:
- 18–20 year olds: £10.18 per hour (up from £10.00)
- Under 18: £7.75 per hour (up from £7.55)
- Apprentices: £7.75 per hour (up from £7.55)
These rates apply regardless of the type of work, whether you are in retail, hospitality, care, or any other sector. If your employer is not paying the correct rate, you have the right to report it to HMRC.
The Employer Perspective
It is worth understanding what this wage increase looks like from the other side of the table. When your hourly rate goes up, your employer does not just pay the difference. They also pay employer National Insurance (15%) on the additional earnings, plus any auto-enrolment pension contributions.
For a business with, say, 20 employees on the National Living Wage, the combined cost increase — wages plus employer NI plus pension — can add up to tens of thousands of pounds per year. This is one reason why some businesses respond to minimum wage increases by reducing hours, cutting overtime, or slowing recruitment.
If you manage a team and want to understand the true cost, our employer cost calculator shows you exactly what each employee costs beyond their headline wage.
How the Living Wage Is Set
The National Living Wage is set on the recommendation of the Low Pay Commission, an independent body that consults with employers, workers, and economists. Their target is for the NLW to reach two-thirds of median earnings, and the 2026 increase keeps the rate broadly on track towards that goal.
It is worth noting that the National Living Wage is different from the Real Living Wage, which is calculated by the Living Wage Foundation based on actual living costs. The Real Living Wage for 2025/26 is £12.60 outside London and £13.85 in London — both higher than the statutory minimum.
Does the Increase Keep Up with Inflation?
This is the key question. With CPI inflation running at around 3.2% in early 2026, a 2.4% wage increase does not quite keep pace. In real terms, workers on the National Living Wage are slightly worse off than they were a year ago, even with the increase.
However, compared to five years ago, the NLW has risen significantly. In April 2021, it was £8.91. The journey to £12.50 represents a 40% increase — well above cumulative inflation over the same period. So while the year-on-year increase might feel modest, the longer-term trend has been genuinely positive for low-paid workers.
What You Can Do
If you are on or near the National Living Wage, there are a few things worth checking:
- Make sure your tax code is correct — a wrong tax code could mean you are paying too much tax
- Check whether you are eligible for any working from home tax relief if you work remotely even part of the time
- If you are considering picking up extra hours or a second job, use our salary comparison calculator to understand the tax implications
Every pound counts when you are on a lower income, and making sure you are not overpaying tax is one of the simplest ways to keep more of what you earn.