Understanding Your Payslip – The Basics

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Understanding Your Payslip - The Basics

UK employers are required by law to provide their employees with a payslip on or before the day they are paid.

When you receive your payslip you should check it and let your employer know as soon as possible if you find any errors.

In this guide we cover the most basic information you should find on your payslip with an explanation of what all the different numbers mean.

Payslip

1. Tax code

Your tax code represents the amount of money you can earn before you have to start paying tax.

For most people who have one job the standard Personal Allowance for the tax year 2019-20 is £12,500. HMRC will add up any income that you have not paid tax on and the value of any benefits from your job such as a car allowance or medical insurance and deduct this from your Personal Allowance. What’s left is the amount of tax-free income you’re allowed to earn in the tax year.

The last digit of the tax-free income amount is removed, and this becomes the numerical part of your tax code. The letter at the end of the tax code depends on your particular circumstances.

L – you’re entitled to the standard Personal Allowance.

M – you’ve received a transfer of 10% of your partner’s Personal Allowance (Marriage Allowance).

N – you’ve transferred 10% of your allowance to your partner.

T – other calculations have been used to work out your Personal Allowance. For example, it’s been reduced because you earn more than £100,000 a year.

0T – your Personal Allowance has been used up, or you’ve started a new job and your employer isn’t yet able to give you a tax code.

BR – your income from this job is taxed at the basic rate. This is usually used if you have more than one job.

D0 – your income from this job is taxed at the higher rate.

D1 – your income from this job is taxed at the additional rate.

NT – you’re not paying any tax on this income.

W1/M1 – you have been given an emergency tax code

Scotland

S0T – your Personal Allowance has been used up, or you’ve stated a new job and your employer isn’t yet able to give you a tax code.

SBR – your income from this job is taxed at the basic rate in Scotland. This is usually used if you have more than one job.

SD0 – your income from this job is taxed at the intermediate rate in Scotland.

SD1 – your income from this job is taxed at the higher rate in Scotland.

SD2 – your income from this job is taxed at the top rate in Scotland.

Wales

C0T – your Personal Allowance has been used up or you’ve started a new job and your employer isn’t yet able to give you a tax code.

CBR – your income from this job is taxed at the basic rate in Wales. This is usually used if you have more than one job.

CD0 – your income from this job is taxed at the higher rate in Wales.

CD1 – your income from this job is taxed at the additional rate in Wales.

If you think you have been given the wrong tax code you can ask HMRC to send your employer a new tax code by phoning the Income Tax Helpline on 0300 200 3300.

2. National Insurance number

A personal identifier, that is unique to you, used by HMRC to track your tax and National Insurance contributions.

3. Gross pay

This is how much you get paid before any tax and other deductions. It is your yearly salary divided by 12. 

4. Net pay

This is your take-home pay and is what will actually be paid into your bank account each month. 

5. Tax

This is the amount of income tax that has been deducted from your salary this month. The rate of tax you pay depends on how much you earn over your Personal Allowance.

England & Northern Ireland

Basic rate – up to £37,500 – 20%

Higher rate – £37,501 to £150,000 – 40%

Additional rate – over £150,000 – 45%

Scotland

Starter rate – up to £2,049 – 19%

Basic rate – £2,050 to £12,444 – 20%

Intermediate rate – £12,445 to £30,930 – 21%

Higher rate – £30,931 to £150,000 – 40%

Top rate – over £150,000 – 46%

Wales

Basic rate – up to £37,500 – 20%

Higher rate – £37,501 to £150,000 – 40%

Additional rate – over £150,000 – 45%

As well as your Personal Allowance you will receive tax relief on any pension contributions you make.

Our online tax calculator can help you work out how much tax you should be paying. 

Using the example in the payslip above:

Gross salary – £51,000

Pension contributions – £2,550

Tax free allowance – £12,500

Total taxable pay – £35,950

Tax at 20% – £7,190

Tax paid each month – £599.17

6. National insurance

Your National Insurance (NI) contributions help you qualify for certain benefits such as Contribution-based Jobseeker’s Allowance, Maternity Allowance, and the State Pension.

If you are over 16 and earning more than £166 a week you have to pay National Insurance contributions. The rates for most employed people are as follows:

Earnings of £166 – £962 a week (£719 – £4,167 a month) – 12%

Earnings over £962 a week (£4,167 a month) – 2%     

In the example above:

Nothing is paid on the first £719

12% is paid on £3,448 – £413.76

2% is paid on the remaining £83 – £1.66

NI paid each month – £415.42

07. Pension contributions

Unless you opt out you will be auto-enrolled into your workplace pension scheme. The minimum contribution is 8% of an employee’s qualifying earnings which is made up of your contribution, your employer’s contribution, and the contribution from the government in the form of tax relief. You can find out more about pension auto-enrolment here.   

In the example above Sophia has chosen to contribute 5% of her gross salary to her workplace pension. This is £212.50 a month and was deducted from her earnings before tax was applied, as shown above. 

08. Student loan repayment

There are two types of student loan repayment plans. The main difference between the two is that they have different thresholds of income before you need to start repaying your loan. You will be required to pay 9% of any earnings over that threshold.  

If you were a student at any time in Scotland or Northern Ireland, or you started your undergraduate studies before September 2012 in England or Wales then you’ll be on Plan 1. The Plan 1 thresholds are £364 a week or £1,577 a month before tax and deductions.

If you started your undergraduate studies after September 2012 in England or Wales then you’ll be on Plan 2. The Plan 2 thresholds are £494 a week or £2,143 a month before tax and deductions.

In the example above Sophia is on Student Loan Plan 1.

That means she pays 9% of her monthly gross income over £2.143 which is £240.57.

09. Overtime

Your employment contract should state what your normal working hours are and whether you’re entitled to payment for overtime if you work more than those hours.

Employers don’t have to pay extra for overtime, but your average hourly wage for the total hours you work should not fall below the National Minimum Wage – £8.21 if you’re over 25 and £7.70 if you’re aged 21-24.

Any overtime payments will be subject to the usual rates of tax and NI, but you probably won’t make pension contributions on them.

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