UK Payslip & Tax Codes Explained

Most UK employees receive a payslip each month but many never fully understand what all the numbers mean. Getting to grips with your payslip is worth the effort — HMRC estimates that millions of people are on the wrong tax code at any given time, often overpaying tax without realising it. This guide breaks down every element of a typical UK payslip and explains the tax code system in plain English.

What Is on a UK Payslip?

Your payslip must by law include:

• Gross pay: Your total salary before any deductions.
• Income Tax deducted: PAYE (Pay As You Earn) tax calculated based on your tax code and earnings.
• National Insurance (NI): Class 1 employee NI contributions.
• Net pay: What you actually receive — gross pay minus all deductions.
• Tax code: The code HMRC has instructed your employer to use for tax calculations.
• NI category letter: Usually A (standard employee). Different letters apply to married women under the old rules, under-21s, apprentices, etc.
• Year-to-date (YTD) figures: Running totals of gross pay, tax, and NI since 6 April (the start of the tax year).

Common optional lines include: pension contributions, student loan repayments, workplace benefits (cycle-to-work, health insurance, childcare vouchers), salary sacrifice deductions, and bonus or commission payments.

Understanding Your Tax Code

Your tax code tells your employer how much Income Tax to deduct from your salary each pay period. It is set by HMRC and notified to your employer via a P9T or P6 form. You can see your current code on your payslip, P60, or on the HMRC Personal Tax Account app.

The Standard Tax Code — 1257L

For 2025/26, the standard tax code is 1257L. This means:

• 1257 = you have a tax-free Personal Allowance of £12,570 per year (the number represents £12,570 with the last digit removed).
• L = you are entitled to the standard Personal Allowance. No adjustments apply.

Common Tax Code Letters

• L: Standard Personal Allowance (£12,570 for 2025/26). Most people.
• M: Marriage Allowance — you have received 10% of your partner's Personal Allowance.
• N: Marriage Allowance — you have transferred 10% of your Personal Allowance to your partner.
• T: Your tax code includes other calculations — usually because your Personal Allowance is being tapered (earnings over £100,000) or HMRC needs to review your code.
• 0T: No Personal Allowance. Applies if you have used your entire allowance, have a new job with no P45, or your income is above £125,140 (allowance tapers to zero).
• BR: Basic Rate — all income taxed at 20%. Typically a second job or when no P45 has been received.
• D0: All income taxed at 40% Higher Rate. Applied to a second job where your first job already uses the basic rate band.
• D1: All income taxed at 45% Additional Rate.
• K: A negative allowance — you have taxable perks or state benefits worth more than your Personal Allowance, so extra tax is collected each month.
• W1 or M1: Emergency code — your tax is calculated on a week-by-week or month-by-month basis without reference to the full year. Often applied to new starters. Should be resolved once HMRC receives your P45 or new starter information.
• NT: No tax to be deducted (e.g. non-UK residents in some situations).

How PAYE Income Tax Is Calculated

PAYE (Pay As You Earn) spreads your annual tax liability evenly across the year. Each month, your employer calculates tax on a cumulative basis — looking at total earnings from 6 April to date compared to the tax-free amount accumulated to date (based on your code). This means:

• If you earn irregularly, your monthly tax may fluctuate significantly.
• If you have overpaid tax so far this year, your employer may deduct less tax in a later month to correct it automatically.
• Emergency codes (W1/M1) use non-cumulative calculations, which can cause overpayment or underpayment.

National Insurance — What You Pay and Why

Class 1 employee National Insurance contributions for 2025/26:

• Below £12,570/year (Primary Threshold): 0% — no NI payable.
• £12,570 to £50,270/year (Upper Earnings Limit): 8% on each £1 in this band.
• Above £50,270/year: 2% on earnings above this level.

NI is calculated per pay period — not cumulatively like income tax. If you receive a large bonus in one month that pushes you above the Upper Earnings Limit for that period, you pay 2% NI on the excess for that month only. NI contributions build your entitlement to the State Pension and certain benefits. You need 35 qualifying years of NI contributions for the full new State Pension.

How to Check If Your Tax Code Is Wrong

1. Look at your payslip and note your current tax code.
2. If you have one job and no benefits, taxable state income, or outstanding tax debts, you should be on 1257L.
3. Log in to your HMRC Personal Tax Account (via gov.uk) to see your current code and any income HMRC is aware of.
4. Check for any unexplained adjustments — benefits in kind, company car, or untaxed income sources can all modify your code.
5. If the code looks wrong, contact HMRC directly or update your information in your Personal Tax Account.

If you have overpaid tax, HMRC will send a P800 letter after the tax year ends to arrange a refund. You can also claim a refund sooner through your Personal Tax Account if you are confident you have overpaid.

Student Loan Repayments on Your Payslip

If you have a student loan, repayments appear as a separate line. You repay 9% of income above your plan's threshold (see the Salary Calculator for your specific plan). Repayments are calculated monthly based on that month's earnings — so in a month where you earn a bonus, you may repay more than usual. They do not affect your Income Tax or NI calculations directly.