Tax Guide: How to Read Your Payslip UK — Tax Codes, Deductions and What Every Line Means

The top section of your payslip shows your gross pay — the total amount you have earned before any deductions. For salaried employees, this is usually your annual salary divided by 12 (or by the number of pay periods in your contract). For hourly workers, it is your hourly rate multiplied by the hours worked.

You may also see separate lines for overtime, bonuses, commission, or shift allowances. These are all added together to form your total gross pay for the period. It is important to check this figure against your contract — payroll errors in basic pay are more common than you might think.

Some payslips also show your year-to-date (YTD) gross earnings. This cumulative figure is useful at tax year end (5 April) for checking whether you have crossed into a higher tax band or exceeded allowances such as the Personal Savings Allowance (gov.uk/apply-tax-free — see GOV.UK for current allowances (gov.uk/income-tax-rates)-interest-on-savings).

Your tax code tells your employer how much tax-free income you are entitled to before PAYE deductions begin. The most common code for 2025/26 is 1257L, which means you have a Personal Allowance of £12,570. The number in the code is multiplied by 10 to give your tax-free amount.

Other common codes include:

• BR — all income taxed at 20% basic rate (often used for a second job)
• D0 — all income taxed at 40% higher rate
• K codes — you owe tax from a previous year, so your allowance is reduced (the number after K is added to your taxable income)
• S prefix — Scottish income tax rates apply
• C prefix — Welsh income tax rates apply
• NT — no tax deducted

If your tax code is wrong, you could be overpaying or underpaying tax. HMRC issues tax codes based on information it holds, but mistakes happen — particularly if you change jobs, have multiple employments, or receive taxable benefits. You can check and update your tax code through your HMRC Personal Tax Account online.

Once your tax-free Personal Allowance of £12,570 has been accounted for, the remaining income is taxed in bands. For England, Wales and Northern Ireland in 2025/26:

• Basic rate: 20% on income up to £37,700 (above the Personal Allowance)
• Higher rate: 40% on income from £37,701 to £125,140
• Additional rate: 45% on income above £125,140

Your payslip shows the PAYE (Pay As You Earn) tax deducted for that pay period. HMRC operates a cumulative system, so your employer calculates tax based on your total earnings since 6 April, not just the current month. This means if you receive a bonus in one month, the tax deducted may seem disproportionately high — but it should balance out over the year.

Scottish taxpayers face a different structure with six rates: starter (19%), basic (20%), intermediate (21%), higher (42%), advanced (45%), and top (48%). If you live in Scotland, your tax code will begin with an 'S' prefix.

The Personal Allowance tapers for those earning above £100,000 — it reduces by £1 for every £2 of income above this limit, disappearing entirely at £125,140. This creates an effective marginal rate of 60% in the £100,000–£125,140 band.

National Insurance (NI) is the second major deduction on your payslip. For employees in 2025/26, Class 1 NI is charged at:

• 8% on earnings between the Primary Threshold (£242 per week / £1,048 per month / £12,570 per year) and the Upper Earnings Limit (£967 per week / £4,189 per month / £50,270 per year)
• 2% on earnings above the Upper Earnings Limit

Unlike income tax, NI is calculated on a per-period basis (weekly or monthly) rather than cumulatively. This means a one-off bonus could push you into higher NI territory for that period.

Your employer also pays NI on your behalf at 15% on earnings above the Secondary Threshold, which dropped to just £96 per week (£5,000 per year) in 2025/26 — a significant increase from the previous year's £175 per week. This employer NI cost does not appear as a deduction on your payslip, but it affects your total cost of employment.

Self-employed workers pay different NI classes: Class 2 at £3.50 per week (if profits exceed £6,845) and Class 4 at 6% on profits between £12,570 and £50,270, plus 2% above that.

Most employees are automatically enrolled into a workplace pension scheme. The minimum contributions under auto-enrolment are 8% of qualifying earnings, split between 5% from the employee and 3% from the employer. Many employers offer more generous schemes.

Pension contributions may be shown as either net pay (deducted before tax, so you get immediate tax relief) or relief at source (deducted after tax, with your provider claiming 20% basic rate relief from HMRC). If you are a higher-rate taxpayer in a relief-at-source scheme, you must claim the additional 20% tax relief through Self Assessment.

Other common deductions you may see include:

• Student loan repayments: Plan 1 at 9% above £24,990, Plan 2 at 9% above £27,660, Plan 4 (Scotland) at 9% above £31,395, Plan 5 at 9% above £25,000, Postgraduate loan at 6% above £21,000
• Salary sacrifice: Reductions for cycle-to-work schemes, childcare vouchers, or additional pension contributions
• Union subscriptions, charitable giving via payroll, or court-ordered deductions

Your net pay — the amount actually transferred to your bank account — is your gross pay minus all of these deductions.

Payroll mistakes cost UK workers an estimated hundreds of millions of pounds a year. Here is a quick checklist to verify your payslip:

1. Check your tax code against your latest HMRC notice or Personal Tax Account. If it says 1257L and you have no special circumstances, that is correct for 2025/26.
2. Calculate your expected tax: Subtract £12,570 from your annual salary, then apply the 20%/40%/45% bands. Divide by 12 for your monthly deduction.
3. Verify NI: For a £35,000 salary, monthly NI should be roughly 8% × (£2,917 − £1,048) = £149.52.
4. Check pension contributions: Confirm the percentage matches your scheme and that employer contributions appear.
5. Review YTD figures: These should accumulate correctly month on month.

If you spot an error, raise it with your payroll department first. If your tax code is wrong, contact HMRC on 0300 200 3300 or update it via your Personal Tax Account. If you have overpaid tax during the year, HMRC should issue a refund automatically after 5 April — but it is worth checking rather than assuming.

This article is for informational purposes only and does not constitute regulated financial advice. If you have complex tax affairs, consult a qualified financial adviser or tax professional.