Payslip Deductions Explained

Your payslip may show several different pay figures, and understanding which one each deduction is based on is essential for checking whether the numbers are correct.

Gross pay is the total amount you are contractually entitled to for the pay period before any deductions. It includes your base salary, overtime, commission, bonuses, and any statutory payments such as SSP or SMP. Gross pay is the starting point for everything else.

Taxable pay is the pay on which payroll calculates income tax. Pension contributions under a net pay arrangement reduce it; relief-at-source pension deductions do not. Pension salary sacrifice reduces contractual cash pay, so payslips may show gross pay already reduced by the sacrifice. Do not subtract it twice. Taxable benefits can also affect the figure.

NI-able pay is the earnings on which National Insurance is calculated. Ordinary employee pension contributions under either net pay or relief at source do not reduce it. Pension salary sacrifice generally reduces both taxable cash pay and NI-able pay. Your payslip layout may show these adjustments differently.

In summary: a salary sacrifice pension saves you income tax and NI; a relief-at-source pension saves you income tax only. This is why two people on identical salaries with identical pension contribution rates can have different payslip totals depending on their pension arrangement.

PAYE (Pay As You Earn) is the mechanism through which income tax is collected via payroll. Your employer deducts the estimated tax due each pay period and pays it directly to HMRC on your behalf.

The income tax bands for England, Wales, and Northern Ireland in 2026–27 are:

Band	Income range	Rate
Personal allowance	Up to £12,570	0%
Basic rate	£12,571 – £50,270	20%
Higher rate	£50,271 – £125,140	40%
Additional rate	Above £125,140	45%

Scotland has a separate set of income tax bands set by the Scottish Parliament. Scottish taxpayers have a six-band structure with a starter rate of 19%, basic rate 20%, intermediate rate 21%, higher rate 42%, advanced rate 45%, and top rate 48% on income above £125,140. The codes for Scottish taxpayers begin with the letter S (e.g. S1257L).

The personal allowance tapers by £1 for every £2 of adjusted net income above £100,000, reaching zero at £125,140. For employment income in England, Wales and Northern Ireland, that can produce an effective 60% income-tax rate within the taper range. Scotland differs; NI and student loans are separate deductions.

For most employees, National Insurance is calculated separately for each pay period rather than cumulatively like PAYE. Directors have annual earnings rules, and errors or overpayments can still be corrected. A bonus therefore needs checking against that period’s NI thresholds, not simply one twelfth of annual thresholds.

Employee NI rates for category A in 2026–27: other category letters can have different rates.

Weekly earnings	Monthly earnings	Employee NI rate
Up to £242	Up to £1,048	0%
Above £242 up to £967	Above £1,048 up to £4,189	8%
Above £967	Above £4,189	2%

Employer NI is a separate cost borne by the employer, not deducted from your pay, at 15% on earnings above the secondary threshold of £96 per week (£5,000 per year) from April 2025. Employer NI does not appear on your payslip as a deduction from your wages, but it is visible to your employer as a payroll cost — which is why salary sacrifice arrangements (which reduce employer NI as well as employee NI) are attractive to both parties.

The table uses the thresholds for the actual pay frequency. NI categories, earnings periods and the treatment of specific payments matter; do not assume that the income-tax calculation also checks NI.

Workplace pension contributions are one of the most valuable deductions on a payslip, even though they reduce take-home pay. Under auto-enrolment legislation, both you and your employer must contribute to a qualifying pension scheme.

2026–27 minimum contributions on qualifying earnings:

• Usual employee contribution: 5% of qualifying earnings, including tax relief where applicable
• Employer minimum: 3% of qualifying earnings
• Qualifying earnings band: £6,240 – £50,270 per year

The usual minimum total is 8%, including at least 3% from the employer. If the employer pays more, the employee may pay less. Check whether your scheme uses qualifying earnings or a different pay basis. At £25,000, 5% of (£25,000 − £6,240) is £938 a year, averaging £78.17 a month including any tax relief. Under relief at source, the cash deducted is lower because the provider adds basic-rate relief.

Auto-enrolment applies if you are aged between 22 and State Pension age and earn above £10,000 per year from a single employer. Workers aged 16–21 or above State Pension age, or those earning below £10,000, are not auto-enrolled but can opt in voluntarily.

How the deduction appears on your payslip depends on the type of arrangement:

• Salary sacrifice pension: shown as a pre-tax deduction; reduces both taxable pay and NI-able pay.
• Net pay arrangement: deducted before income tax; reduces taxable pay but not the earnings used for NI.
• Relief at source: deducted from net pay after all tax and NI; the pension provider claims 20% tax relief from HMRC and adds it to your pot.

Student loan repayments are collected through payroll. Deductions can start from an HMRC notice or relevant P45 or starter information. Check which repayment plan you are on rather than choosing a plan by where you live now. Ask payroll or the Student Loans Company about an incorrect plan or deductions that should stop.

Repayment thresholds and rates for 2026–27:

Plan	Annual threshold	Repayment rate above threshold
Plan 1	£26,900	9%
Plan 2	£29,385	9%
Plan 4	£33,795	9%
Plan 5	£25,000	9%
Postgraduate Loan	£21,000	6%

Payroll uses the earnings figure used for employer Class 1 NI and the threshold for that pay period. HMRC requires deductions to be rounded down to whole pounds. On Plan 2 with £3,000 monthly earnings, (£3,000 − £2,448.75) × 9% = £49.6125, so payroll deducts £49.

If you have both an undergraduate and a postgraduate loan, both deductions appear separately on your payslip. Repayments do not reduce taxable pay or NI-able pay — they are post-tax deductions.

Salary sacrifice (also called salary exchange) means agreeing to lower cash salary in exchange for a benefit. The tax and NI treatment depends on the benefit; a reduced salary does not make every benefit tax-free. See HMRC’s salary-sacrifice guidance.

Common salary sacrifice schemes:

• Pension: if a £100 sacrifice falls entirely within the 20% income-tax and 8% employee-NI bands, the employee saves £28 (£20 + £8), making the take-home cost £72 before other effects such as student loans. A possible £15 employer-NI saving is separate and is not automatically added to your pension.
• Electric vehicle (EV) lease: a zero-emission company car has a 4% benefit-in-kind percentage in 2026–27. With a £40,000 taxable list price and a full year of availability, that gives £1,600 of taxable benefit, or £320 tax if all taxed at 20%. Compare this tax and the take-home cost of the sacrifice with the alternative lease cost.
• Cycle-to-work: qualifying bike and safety-equipment schemes can use salary sacrifice; check the scheme conditions with your employer.
• Holiday purchase: buy additional leave; confirm whether the employer uses a gross-pay reduction or another deduction arrangement.

A payslip may show a separate sacrifice line or gross cash pay already reduced. Do not subtract it twice. Taxable pay, NI-able earnings and pensionable pay can differ, especially with payrolled benefits or a protected reference salary; ask payroll which basis it uses for each deduction.

Beyond tax, NI, pension, and student loan, a variety of other deductions can appear on a UK payslip. Most are uncommon or situation-specific, but they can cause confusion when they appear unexpectedly.

• Attachment of earnings: a court-ordered deduction for unpaid debts, fines, council tax arrears, or child maintenance. Your employer is legally required to apply it once served with the order. It is a post-tax deduction and does not affect your taxable pay.
• Trade union subscriptions: an authorised payroll deduction. Ordinary union fees are generally not tax-deductible, but HMRC describes exceptions, including qualifying professional subscriptions.
• Employee share schemes: SAYE or SIP payments may appear. SIP partnership shares can be bought from gross pay up to the lower of £1,800 or 10% of salary each tax year; keeping the tax advantages also depends on the scheme’s holding rules.
• Season ticket loans: an employer may advance travel costs and recover them through payroll. The usual small-loan tax exemption depends on the combined balance of employment-related beneficial loans staying at £10,000 or less throughout the year, not just the season ticket loan. Salary-sacrifice loan arrangements have different rules.
• Childcare vouchers (legacy schemes): new sign-ups closed in October 2018, but existing members still have voucher deductions. Basic-rate taxpayers can sacrifice up to £55 per week (£2,860/year) tax and NI free.
• Salary advances: if you have taken a salary advance through an employer scheme, the repayment appears as a deduction in subsequent months.

This illustration uses £35,000 annual salary, a monthly payment of £2,916.67 on 30 April 2026 (tax month 1), 1257L cumulative, category A NI, a Plan 2 loan and a net pay pension at 5% of qualifying earnings. Assume no earlier pay or tax in the tax year, no benefits and no other adjustments. PAYE below uses HMRC’s manual tax tables; this is a worked illustration, not a claim that every payroll method returns identical pennies.

Item	Amount	Basis
Monthly gross pay	£2,916.67	£35,000 ÷ 12
Pension (net pay arrangement, 5%)	−£119.83	5% of (£2,916.67 − £520.00)
Taxable pay	£2,796.84	Gross − pension
PAYE (1257L, month 1 manual tables)	−£349.60	£1,748 whole pounds of pay after the code adjustment × 20%
Employee NI (category A)	−£149.49	8% of (£2,916.67 − £1,048), rounded to pennies
Student loan Plan 2	−£42.00	9% of (£2,916.67 − £2,448.75), rounded down to whole pounds
Net pay in this illustration	£2,255.75	Gross less pension, PAYE, NI and student loan

The pension is 5% of (£2,916.67 − £520), rounded to £119.83. HMRC’s Tables A month 1 pay adjustment for code 1257L is £1,048.26: 2 × £416.67 plus £214.92. Subtracting it from £2,796.84 leaves £1,748.58; the manual method rounds this down to £1,748 before applying 20%. The annual Personal Allowance divided by 12 is not the manual code adjustment.

HMRC’s payroll-checking collection links to Tables A and the 2026–27 taxable-pay tables. Our checker provides an annualised estimate; ask payroll to check exact period calculations, especially cumulative pay and tax to date.

A year-to-date (YTD) column totals figures from 6 April to the current pay date. It is useful, but GOV.UK lists YTD information as optional, not a mandatory payslip field.

YTD figures are useful in several ways:

• Checking annual records: compare corresponding pay and tax figures with your P60. Ask payroll to explain differences, including adjustments or figures from earlier employment; a difference alone does not prove an error.
• Checking cumulative tax: payroll needs taxable pay, tax already deducted, the code and the tax period. Dividing YTD tax by gross pay does not verify the calculation.
• Following deductions: where a YTD total is provided, compare it with the period deductions. A missing optional total does not mean the deductions were not made.
• Useful for mortgage applications: lenders often ask for three months of payslips; the YTD figures give context about total earnings for the year to date.

Keep your payslips and P60 so you can trace a deduction or correction. Record-retention requirements depend on your circumstances, including whether you file Self Assessment.

UK employment law places clear obligations on employers regarding payslips, and knowing these rights empowers you to challenge incorrect or incomplete pay documentation.

Right to a payslip: employees and workers normally have a right to a payslip on or before payday, in print or electronically. GOV.UK lists exceptions, including contractors and freelancers, the police and certain workers at sea.

Pay and deductions: the payslip must show gross pay, net pay and variable deductions such as tax and NI. Fixed deductions must be explained on the payslip or in a separate written statement supplied before the first payslip and updated each year.

Hours-based pay: if any part of your pay is calculated by reference to the number of hours worked, the payslip must state those hours. This applies to hourly-rate workers and those on variable hours.

If information is missing or a deduction is unexplained, start with payroll and follow GOV.UK’s payslip guidance on resolving a problem.