PAYE Explained: What Comes Off a UK Payslip and Why

Most UK employees never file a tax return, because PAYE does the work every payday. That is convenient right up to the month the number looks wrong, at which point it helps to know what the deductions should have been.

What PAYE actually takes off

Two deductions do most of the damage. Income tax starts once you pass your personal allowance, currently £12,570, then runs at 20% up to £50,270 of income, 40% above that, and 45% past £125,140. Employee National Insurance is 8% on earnings between £12,570 and £50,270, then 2% on anything above.

Work through £32,000. Taxable pay is £32,000 minus £12,570, which is £19,430, and 20% of that is £3,886. National Insurance is 8% of the same £19,430, or £1,554. Deduct both and you keep £26,560, near enough £2,213 a month. Note that both deductions use the same band here, which is why the two numbers look related.

What happens at higher rate

On £58,000, the bands split. The first £37,700 of taxable pay is charged at 20%, giving £7,540, and the remaining £7,730 is charged at 40%, giving £3,092, so £10,632 of income tax. National Insurance goes the other way: 8% on the £37,700 is £3,016, then only 2% on the £7,730 above the upper limit, which is £155. Total deductions are £13,803, leaving £44,197 or about £3,683 a month. The marginal rate on that top slice is 42%, not 40%, once National Insurance is counted. Our National Insurance explainer goes through the bands in more detail.

Your tax code does most of the deciding

The code on your payslip tells payroll how much you can earn before tax. 1257L means £12,570 tax free, spread evenly across the year, so about £1,047 a month. PAYE is cumulative, which is why a month where you earn less can produce a refund rather than a smaller deduction.

When the code is wrong

BR taxes every penny at 20% with no allowance, which is correct on a second job and expensive if it lands on your main one. 0T does the same with no allowance and full banding, usually because HMRC has no starter information. Codes ending W1 or M1 are non-cumulative emergency codes: each pay period is treated as if it were the first of the year, so overpayments do not correct themselves until the code is fixed. If you started a job mid-year and the take-home looks low, the code is the first thing to check, before the arithmetic.

Using the calculator and where to find the inputs

Enter gross annual salary, the figure in your contract or the gross year-to-date total on your payslip, not the amount that arrives in your account. Pick the right pay frequency, because monthly and four-weekly pay produce different period figures from the same salary.

Your tax code sits on the payslip near your National Insurance number, and on any P45 or P60. Enter it exactly, including the letter. Pension contributions matter more than people expect: a salary sacrifice arrangement reduces the pay that is taxed at all, so it cuts both income tax and National Insurance, while a net pay arrangement only reduces income tax. Student loan repayments are a separate field, and the plan number is on your loan statement. If you want the deductions broken out month by month, the UK take-home pay guide lays out the same figures as a payslip.

Common questions

Why did my tax jump when I got a bonus? PAYE assumes the month repeats. A £4,000 bonus in one month looks to payroll like a much larger annual salary, so it deducts as if you were in a higher band all year. The cumulative system corrects itself over the following months.

Is PAYE the same as National Insurance? No. PAYE is the collection mechanism. Income tax and National Insurance are the two things it collects, and they use different thresholds and different rules, which is why they appear as separate lines.

Do I still need to file a tax return if I am on PAYE? Usually not. It changes if you have self-employed income, rental income, untaxed savings or dividend income, or if the High Income Child Benefit Charge applies. PAYE handles a single salaried job on its own.

Why is my monthly take-home different every month? Overtime, bonuses and commission move gross pay, and the cumulative calculation adjusts as the year progresses. A code change part way through the year will also shift things until the running totals settle.