How a UK payslip works
An employee in the United Kingdom sees two deductions on every payslip, and sometimes a third. Income tax is collected through PAYE (Pay As You Earn): the employer works out the tax due from the tax code HMRC has issued and deducts it before paying you. Class 1 National Insurance is the contribution towards the state pension and certain benefits, again deducted at source. Anyone repaying a student or postgraduate loan has a third line, collected by the employer on HMRC’s behalf once earnings pass the threshold for their plan. The employer pays its own Class 1 contribution on top of the gross salary, which is the largest part of the real cost of the job to the company.
Income tax, the personal allowance and tax codes
Most of what you earn up to the personal allowance is tax free. The employer knows how much allowance to give you from your tax code: the standard code for someone with one job and no adjustments gives the full allowance spread evenly over the year. Above the allowance, taxable pay is rounded down to a whole pound and taxed in bands at increasing rates. England, Wales and Northern Ireland share one set of bands and rates; Scotland sets its own, with more bands and different rates, applied to Scottish taxpayers through a tax code with an S prefix. Wales has the power to vary its rates but has kept them aligned with England, so a Welsh code currently produces the same result.
The personal allowance is not available in full to high earners. Above an income threshold it is withdrawn by one pound for every two pounds of income, until it reaches zero. In that range every extra pound is taxed at the higher rate and also removes half a pound of allowance, so the effective marginal rate is far above the headline rate. HMRC applies the withdrawal through an adjusted tax code once it knows your income; a new job on the standard code will under-withhold until then, and the calculator shows a warning in that range.
National Insurance
Employees pay Class 1 National Insurance at the main rate on earnings between the primary threshold and the upper earnings limit, and at a much lower rate on everything above. Unlike income tax it is not cumulative: each pay period is assessed on its own thresholds, and the calculator uses the annual equivalents, which is exact for a director and within pennies for a regular salary paid evenly. Each contribution is calculated separately to the nearest penny with an exact half penny disregarded. Employers pay their own contribution on everything above the secondary threshold with no upper limit; the employment allowance that small employers can set against it is a per-employer relief and is not reflected here.
Student and postgraduate loans
Repayments depend on which plan you are on, which is set by where and when you took out the loan: Plan 1 for older loans, Plan 2 for English and Welsh loans taken since 2012, Plan 4 for Scottish loans, and Plan 5 for English loans since 2023. Each plan has its own earnings threshold; above it the employer deducts a fixed percentage of the excess, rounded down to a whole pound. A postgraduate loan is repaid at a lower rate above its own threshold, and someone with both an undergraduate plan and a postgraduate loan repays both at the same time. Repayments are based on gross pay, not on taxable pay.
What the employer pays on top
The employer section shows the employer’s Class 1 contribution. Together with the gross salary it is the cost of employing you before pension contributions, the apprenticeship levy for large employers and benefits.
What this calculator assumes
The result models an employee on the standard tax code, paid evenly through the year, with no pension contributions and no benefits in kind. It does not cover:
- Workplace pension contributions, whether by salary sacrifice or net pay, which reduce taxable pay and often National Insurance.
- Adjusted tax codes for benefits in kind, underpaid tax from earlier years, the marriage allowance or the blind person’s allowance.
- A second job or other income, which usually means a BR or D code on one of them.
- The high income child benefit charge and other charges collected through self assessment rather than payroll.
- Employees exempt from National Insurance, for example those over state pension age, and employer reliefs such as the employment allowance.
PAYE versus your final tax bill
For most employees PAYE settles the year exactly, because the tax code already reflects their circumstances. It falls short when income changes during the year, when the personal allowance taper applies but the code has not caught up, or when there is untaxed income from savings, dividends or self-employment. In those cases HMRC either adjusts next year’s code or asks for a self assessment return. Use this page for a monthly budget and check your tax code when your circumstances change.