What is gross salary vs net salary?

Gross salary is your total pay before any deductions - what's in your employment contract. Net salary (take-home pay) is what actually lands in your bank account after income tax, National Insurance, pension contributions, and student loan repayments are deducted. For example, a £40,000 gross salary in England results in approximately £31,000 net pay (£2,583/month). The difference between gross and net increases as you earn more due to progressive tax rates.

Why is my take-home pay different from my colleagues on the same salary?

Even with identical salaries, take-home pay varies based on: tax code (those with allowances get more), pension contribution percentage (higher contributions mean less take-home but more retirement savings), student loan plan (Plan 1/2/4 have different thresholds and rates), location (Scottish taxpayers pay different rates), and any salary sacrifice schemes like cycle-to-work. Additionally, if you have benefits in kind (company car, private medical) or previous tax underpayments, your code may differ. Always check your tax code is correct.

What is a tax code and what does 1257L mean?

Your tax code tells your employer how much tax-free pay you're entitled to in the tax year. 1257L is the standard code for 2025/26, meaning you have the full £12,570 personal allowance. The number is your allowance divided by 10 (12570 ÷ 10 = 1257), and L indicates you're entitled to the standard personal allowance. Other letters mean: K (you owe tax from previous years), BR (all income taxed at basic rate - common for second jobs), and OT (no allowances). Check your tax code on your payslip matches what HMRC says.

What is National Insurance and why do I pay it?

National Insurance (NI) is a tax on earnings that funds the NHS, state pension, and certain benefits. For 2025/26, employees pay 8% on earnings between £12,570-£50,270, then 2% above £50,270. It's separate from income tax. You need 35 years of NI contributions for the full state pension (currently £221.20/week). Once you reach state pension age (currently 66), you stop paying NI even if still working. Self-employed pay Class 2 (£3.45/week) and Class 4 NI (6% on profits £12,570-£50,270, then 2% above).

How do pension contributions affect my take-home pay?

Pension contributions through your employer are usually 'salary sacrifice' or 'relief at source', saving you income tax and National Insurance. If you contribute 5% (£2,000) on a £40,000 salary, your taxable income drops to £38,000, saving you £400 income tax (20%) + £160 NI (8%) = £560 in tax. So that £2,000 pension contribution only costs you £1,440 in take-home pay. Higher rate taxpayers save even more (40% + 2% = 42%). This makes pensions incredibly tax-efficient. Plus, most employers match contributions up to a certain percentage - free money!

What are student loan repayments and when do they come out?

Student loan repayments are automatically deducted from your salary once you earn above your plan's threshold. For 2025/26: Plan 1 (pre-2012 loans, Scottish) repays 9% above £24,990, Plan 2 (English/Welsh 2012-2023) repays 9% above £27,295, Plan 4 (Scottish 2023+) repays 9% above £31,395, and Postgraduate loans repay 6% above £21,000. If you have both undergraduate and postgraduate loans, you pay both (15% total). Repayments stop when the loan is cleared or after 25-40 years depending on your plan, when it's written off.

What does 'taxable pay' mean on my payslip?

Taxable pay is your gross salary minus any tax-free allowances and deductions. It's the amount that income tax is actually calculated on. For example, if you earn £3,333/month gross and contribute £167/month to pension through salary sacrifice, your taxable pay is £3,166. Income tax is charged on this lower amount, saving you money. Some benefits (like company cars) add to your taxable pay even though you didn't receive cash. Non-taxable items include employer pension contributions, certain travel expenses, and bikes through cycle-to-work schemes.

Why do I pay emergency tax code and how do I fix it?

Emergency tax (code 1257L W1, M1, or X) happens when HMRC doesn't have your tax information - usually when you start a new job and haven't provided your P45 from your previous employer. It taxes you as if you earn that month's salary every month, often overtaxing you. To fix it: give your new employer your P45, or if you don't have it, complete HMRC's 'starter checklist'. HMRC will refund overpaid tax automatically within 2-3 months, or you can claim it back immediately by calling HMRC. Never ignore emergency tax - you're losing money.

What is the difference between monthly and annual salary?

Annual salary is your total yearly earnings in your contract (e.g., £40,000/year). Monthly salary is this divided by 12 (£40,000 ÷ 12 = £3,333.33/month). However, if you're paid 4-weekly, you receive 13 payments per year, not 12, so each payment is slightly less (£40,000 ÷ 13 = £3,076.92). Weekly pay is divided by 52 (£40,000 ÷ 52 = £769.23/week). When budgeting, always work in the same time period as your pay frequency. Some companies pay twice monthly (24 payments) instead of monthly (12 payments).

Can I check if my employer is deducting the correct amount?

Yes! Use HMRC's online services or our tax calculator to verify deductions. Your payslip should show: gross pay, tax code, taxable pay, income tax deducted, National Insurance deducted, pension contributions, student loan repayments (if applicable), and net pay. Common errors include wrong tax code, incorrect pension percentage, or missing allowances. If something looks wrong, check your tax code on the HMRC app first. If your employer is deducting incorrectly, raise it with payroll immediately. Keep all payslips - you may need them to reclaim overpaid tax.

Understanding Your UK Payslip 2026 - Complete Breakdown Guide

Your payslip contains crucial information about your earnings, tax, and deductions - but it can look like an incomprehensible mix of codes, abbreviations, and numbers. This comprehensive guide explains every line of your UK payslip, helping you understand exactly why your take-home pay is what it is, verify your employer is deducting correctly, and spot any errors before they cost you money.

📄Anatomy of a UK Payslip

While layouts vary by employer, every UK payslip contains the same core information required by law. Here's what you'll find:

Key Sections on Every Payslip:

Personal Details: Name, National Insurance number, employee ID, tax code

Pay Period: Date range (e.g., "01/01/2026 - 31/01/2026") and payment date

Gross Pay: Total earnings before deductions (salary, bonuses, overtime)

Deductions: Income tax, National Insurance, pension, student loans

Net Pay: Your actual take-home pay after all deductions

Year-to-Date Totals: Running totals for the tax year (April-March)

💰Understanding Gross Pay

Gross pay is your total earnings before any deductions. This is the number in your employment contract and what's used to calculate all your deductions.

What's Included in Gross Pay:

•Basic Salary: Your regular monthly/weekly pay
•Overtime: Extra hours worked
•Bonuses: Performance bonuses, annual bonuses (taxed heavily!)
•Commission: Sales commissions
•Holiday Pay: Accrued holiday payment
•Statutory Pay: Sick pay, maternity/paternity pay

Example Gross Pay Breakdown:

Basic Monthly Salary:£3,333.33

Overtime (10 hours @ £15/hr):£150.00

Total Gross Pay:£3,483.33

🔢Decoding Your Tax Code

Your tax code tells your employer how much tax-free pay you're entitled to. Getting this wrong means paying too much or too little tax. Check it every year!

Common Tax Codes for 2025/26:

1257L (Most Common)

Standard personal allowance of £12,570. You pay no tax on first £12,570 earned. Most employees have this.

BR (Basic Rate)

All income taxed at 20% with no personal allowance. Common for second jobs or pensions.

D0 (Higher Rate)

All income taxed at 40%. For additional income when you're already a higher rate taxpayer.

D1 (Additional Rate)

All income taxed at 45%. For very high earners with multiple income sources.

K Code (e.g., K500)

You owe tax from previous years or have taxable benefits. Reduces your tax-free pay.

1257L W1/M1 (Emergency Tax)

Temporary code when starting a job without a P45. Usually overtaxes you - fix it quickly!

NT (No Tax)

You pay no tax on this income (rare - usually for very low earners or specific exemptions).

⚠️ Check Your Tax Code is Correct!

Check your tax code on the HMRC app or website. Wrong codes cost you money. Common issues: still on emergency tax (W1/M1), haven't updated after changing jobs, or HMRC hasn't recorded your personal allowance correctly. If wrong, contact HMRC immediately and they'll issue a corrected code to your employer. You can reclaim overpaid tax.

📉Breakdown of Payslip Deductions

This is where your gross pay shrinks to your net pay. Understanding each deduction helps you verify everything is correct and plan your finances.

1. Income Tax (PAYE)

Tax on your earnings using progressive rates. The more you earn, the higher percentage you pay on income above certain thresholds.

2025/26 Tax Rates (England, Wales, NI):

£0 - £12,570:0% (Personal Allowance)

£12,571 - £50,270:20% (Basic Rate)

£50,271 - £125,140:40% (Higher Rate)

Above £125,140:45% (Additional Rate)

Scotland has different rates: 19%, 20%, 21%, 42%, 45%

2. National Insurance (Class 1)

Funds NHS, state pension, and benefits. You stop paying once you reach state pension age (currently 66).

2025/26 NI Rates:

£0 - £12,570/year:0%

£12,571 - £50,270/year:8%

Above £50,270/year:2%

3. Pension Contributions

Contributions to your workplace pension. Minimum is 5% employee + 3% employer (8% total). Most schemes use salary sacrifice, saving you tax and NI.

Example: £40,000 salary, 5% contribution (£2,000/year)

• Reduces taxable income to £38,000
• Saves £400 income tax (20%)
• Saves £160 National Insurance (8%)
• Real cost to you: £1,440 (not £2,000!)
• Plus employer adds £1,200
• Total pension pot gain: £3,200

4. Student Loan Repayments

Automatic deductions if you earn above your plan's threshold. Repayments stop when loan is cleared or after 25-40 years.

2025/26 Repayment Thresholds:

Plan 1 (pre-2012):9% above £24,990

Plan 2 (2012-2023):9% above £27,295

Plan 4 (Scottish 2023+):9% above £31,395

Postgraduate:6% above £21,000

🧮Full Payslip Example: £40,000 Salary

Let's break down a typical monthly payslip for someone earning £40,000/year in England with standard deductions:

Gross Monthly Salary£3,333.33

Less: Income Tax-£457.17

Less: National Insurance (8%)-£239.33

Less: Pension (5% contribution)-£166.67

Less: Student Loan Plan 2-£95.28

Net Monthly Pay (Take-Home)£2,374.88

Total Deductions: £958.45/month (28.75% of gross)
Annual Take-Home: £28,498.56 (£40,000 - £11,501.44)

⚠️ Common Payslip Problems & How to Fix Them

•
Emergency Tax Code (W1/M1): Submit your P45 or complete HMRC starter checklist. Claim back overpayment.
•
Wrong Tax Code: Check HMRC app, update if incorrect. Takes 1-2 months to correct.
•
Incorrect Pension Deduction: Check your pension scheme rules. Contact HR/payroll immediately.
•
Student Loan from Wrong Plan: Tell your employer which plan you're on (check Student Loan Company).
•
Missing Hours/Overtime: Check against your timesheet. Raise with payroll before next pay cycle.

Calculate Your Exact Take-Home Pay

Use our free UK tax calculator to see exactly how much you'll take home from any salary, including all deductions for income tax, National Insurance, pension, and student loans.

Calculate Take-Home Pay →

Understanding Your UK Payslip: Complete Breakdown for 2026