How to Read Your Payslip

Gross Pay vs Net Pay

Your gross pay is what you earn before any deductions. Your net pay (take-home pay) is what actually lands in your bank account after income tax, National Insurance, pension contributions, student loan repayments, and any other deductions. Understanding the gap between these two numbers is the starting point for financial planning. A common mistake is negotiating a salary and then being surprised by the net figure — always calculate take-home pay when comparing job offers.

"Your gross pay is what you earn before any deductions"

Income Tax — How It Works on Your Payslip

Income tax is deducted through PAYE (Pay As You Earn) by your employer each month. The amount depends on your tax code. The standard code for 2025/26 is 1257L, meaning you receive a £12,570 Personal Allowance before paying any tax. Income above £12,570 is taxed at 20% (basic rate), above £50,270 at 40% (higher rate), and above £125,140 at 45%. Your payslip should show the tax deducted this period and the year-to-date total — check the year-to-date figure against what you would expect to pay based on your salary.

National Insurance Contributions

As an employee, you pay Class 1 National Insurance. For 2025/26, you pay 8% on earnings between £12,570 and £50,270, and 2% on anything above £50,270. Your employer also pays 15% on your earnings above £5,000 (from April 2025) — this does not come out of your pay but it is a cost of employing you. NI contributions build your entitlement to the State Pension and certain benefits. You need 35 qualifying years for the full State Pension.

Your Tax Code Explained

Your tax code tells your employer how much tax-free income to give you before deducting tax. 1257L is the standard code (£12,570 allowance). Codes with K at the start mean you have a negative allowance — usually because of unpaid tax or benefits in kind. Codes ending in W1 or M1 are emergency codes applied on a week-by-week or month-by-month basis rather than cumulatively, and often result in overpaying. Multiple job codes are normal — only one job should have the full allowance; the other(s) will be taxed at basic or higher rate from the first pound.

"Your tax code tells your employer how much tax-free income to give you before deducting tax"

Pension Deductions

If you are auto-enrolled in a workplace pension, you will see a pension deduction on your payslip. Under auto-enrolment rules, the minimum total contribution is 8% of qualifying earnings (5% employee, 3% employer). Check both figures are showing correctly. If your employer uses salary sacrifice for pension contributions, your gross pay on the payslip will already be reduced by the pension amount before tax is calculated — this is more tax-efficient and means you also save on National Insurance.

Student Loan Repayments

Student loan deductions appear on your payslip if your income exceeds your repayment threshold. Plan 2 (most graduates who started 2012–2023): 9% of earnings above £27,295. Plan 5 (started 2023+): 9% above £25,000. Postgraduate Loan: 6% above £21,000. If you have both an undergraduate and postgraduate loan, both deductions appear separately. The repayment is automatic through PAYE — you cannot opt out. If you think you have been deducted at the wrong plan rate, contact the Student Loans Company.

Other Common Deductions

You may also see deductions for: Cycle to Work scheme (spreading the cost of a bike tax-efficiently), childcare vouchers if you joined a scheme before October 2018, season ticket loans repaid monthly, trade union membership, private healthcare premiums, and sharesave or share incentive plan contributions. These are all voluntary and should match what you signed up for. Benefits in kind (company car, private medical insurance paid by employer) do not appear as cash deductions but increase your taxable income and affect your tax code.

"These are all voluntary and should match what you signed up for"

What to Do If Something Looks Wrong

If your net pay seems lower than expected, work through the deductions systematically. Start with gross pay, subtract the expected income tax (use a payslip calculator), then NI, then pension, then student loan if applicable. If the total deductions do not match, identify which line is wrong. Tax issues: contact HMRC on 0300 200 3300. Pension issues: contact your HR department or pension provider. Student loan issues: contact the Student Loans Company at studentloans.co.uk. Keep payslips for at least 2 years — they are useful evidence if a dispute arises.