Most of us glance at the "net pay" figure and file the rest. But your payslip is the clearest record you'll ever get of where your money actually goes, and small errors on it can cost you for years.
This guide walks through every line you're likely to see, in plain English. You'll learn what your tax code means, why National Insurance comes out, how pension and student loan deductions work, and how to spot when something's wrong. All the tax figures here are for the 2025/26 tax year.
It's written for employees who want to sense-check their own pay, and for small business owners who run payroll and want to explain it confidently to their team.
What information must a payslip legally show?
If you're an employee or a worker, you're entitled to an itemised payslip on or before payday. It can be paper or electronic.
By law, your payslip must show:
- Your earnings before and after any deductions (your gross and net pay).
- The amount of any deductions that can change each time you're paid, such as tax and National Insurance, listed separately.
- The number of hours worked, where your pay varies by the hours you do.
Deductions that are fixed in amount, like repaying a season ticket loan, don't have to be itemised on the payslip itself. Your employer can instead give you a separate written statement, updated at least once a year.
A few groups aren't entitled to a payslip, including people who aren't classed as workers (such as genuinely self-employed contractors), the police, merchant seamen and some share fishermen.
What do gross pay and net pay mean?
Two numbers do most of the work on any payslip.
Gross pay is what you earn before anything is taken off. It's your salary or wages for the period, plus any overtime, bonus, commission or taxable benefits.
Net pay is what actually lands in your bank account. It's gross pay minus all your deductions: Income Tax, National Insurance, pension contributions, student loan repayments and anything else.
Everything in the middle is a deduction. The rest of this guide is about understanding each one.
What does my tax code mean?
Your tax code tells your employer how much tax-free income you get before Income Tax starts. It usually looks like a number followed by a letter, for example 1257L.
The number is your tax-free amount for the year, divided by 10. The most common code, 1257L, reflects the standard Personal Allowance of £12,570 for 2025/26. Multiply 1257 by 10 and you get £12,570 of tax-free pay spread across the year.
That number can be lower if you have untaxed income or a taxable benefit like private medical insurance, because HMRC reduces your allowance to collect the extra tax through your pay.
The letter describes your situation. The common ones are:
| Code | What it means |
|---|---|
| L | You get the standard tax-free Personal Allowance |
| M | You've received 10% of your partner's allowance (Marriage Allowance) |
| N | You've transferred 10% of your allowance to your partner |
| T | Other calculations are used to work out your allowance |
| 0T | Your allowance is used up, or your employer lacks the details to give you one |
| BR | All this income is taxed at the basic rate (often a second job) |
| D0 / D1 | All this income is taxed at the higher / additional rate |
| NT | No tax is taken from this income |
| K | Your untaxed income or benefits are more than your allowance |
You may also see a code with W1, M1 or X on the end. That's an emergency code, often used when you start a new job before HMRC has your full details. It taxes each pay period in isolation rather than across the year, so it can be wrong either way until HMRC updates it, usually within about 35 days.
How much Income Tax comes out of my pay?
Income Tax is charged on your earnings above your Personal Allowance. For 2025/26, the bands for England, Wales and Northern Ireland are:
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | The next £37,700 (so £12,571 to £50,270) | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
If your adjusted net income goes over £100,000, your Personal Allowance is reduced by £1 for every £2 above that figure, and disappears entirely at £125,140.
Scotland sets its own Income Tax rates and bands, so if you're a Scottish taxpayer (your code starts with an S) the rates above won't apply to you.
PAYE spreads the tax across the year, so a normal payslip shows roughly one twelfth of your annual tax bill each month.
Why is National Insurance deducted?
National Insurance Contributions (NICs) are a separate charge from Income Tax. As an employee you pay Class 1 NICs, and they help build your entitlement to the State Pension and some other benefits.
For 2025/26, the employee Class 1 rates are:
| Earnings | NIC rate |
|---|---|
| Up to the Primary Threshold (£12,570 a year, £1,048 a month) | 0% |
| Between the Primary Threshold and the Upper Earnings Limit (£50,270 a year, £4,189 a month) | 8% |
| Above the Upper Earnings Limit | 2% |
Unlike Income Tax, NICs are usually worked out on each pay period on its own, not across the whole year. So a one-off bonus can attract more NICs in that single month than you might expect.
You'll also see a separate "employer's NI" figure on some payslips. That's a cost your employer pays on top of your wage at 15% above their threshold. It doesn't come out of your pay, but it's useful context if you ever negotiate salary.
How do pension and student loan deductions work?
These are the two deductions that confuse people most, because the way they're shown varies.
Workplace pension. Under auto-enrolment, a percentage of your qualifying earnings is paid into your pension and usually appears as a deduction on your payslip. How it interacts with tax depends on the scheme:
- In a net pay arrangement, your contribution comes out of gross pay before Income Tax, so you get full tax relief straight away.
- In a relief at source arrangement, your contribution comes out of net pay and the pension provider adds 20% basic-rate relief; higher-rate taxpayers claim the rest through Self Assessment.
Either way, your own contribution reduces your take-home pay, while your employer's contribution is on top and shouldn't reduce it.
Student loan. If you're earning above the threshold for your plan type, repayments are collected automatically through PAYE and shown as their own line. The deduction is a percentage of earnings above the threshold, not a fixed bill, so it rises and falls with your pay. The plan type (Plan 1, 2, 4, 5 or Postgraduate) sets the threshold and rate, which is why two colleagues on the same salary can repay different amounts.
Illustrative example: a full payslip broken down
Illustrative example. Sam is an employee on a salary of £35,000 for 2025/26, with tax code 1257L and no student loan. Here's how the annual figures translate into a monthly payslip. We've shown tax and NI first, then noted pension separately so you can see each effect clearly.
| Line | Annual | Monthly (approx) |
|---|---|---|
| Gross pay | £35,000.00 | £2,916.67 |
| Income Tax | £4,486.00 | £373.83 |
| National Insurance | £1,794.40 | £149.53 |
| Take-home (before pension) | £28,719.60 | £2,393.30 |
How the figures are worked out:
- Income Tax. Taxable pay is £35,000 minus the £12,570 Personal Allowance, which is £22,430. That's all within the basic-rate band (the first £37,700 of taxable income), so it's taxed at 20%: £22,430 x 20% = £4,486 a year.
- National Insurance. Earnings above the £12,570 Primary Threshold are £22,430, all below the Upper Earnings Limit, taxed at 8%: £22,430 x 8% = £1,794.40 a year.
Now add a pension. If Sam pays 5% of gross salary into a workplace pension, that's £1,750 a year (£145.83 a month). In a net pay scheme that comes off before tax; in a relief-at-source scheme it comes off after tax with relief added by the provider. Take-home after a £1,750 contribution is roughly £26,969.60 a year, or about £2,247 a month, before accounting for any difference in how relief is given.
Want to see your own numbers? Try the Zmartly payslip calculator or the income tax calculator for a quick estimate.
How do I check my payslip is correct?
A two-minute check each payday catches most errors before they snowball:
- Check your tax code. Does it match the code on your latest HMRC coding notice? A surprise BR, 0T or emergency (W1/M1/X) code often means you're paying too much.
- Check gross pay. Does it match your contracted salary or the hours you actually worked, including any overtime or bonus?
- Sense-check tax and NI. Big swings from one month to the next, with no change in pay, are worth questioning.
- Confirm your pension and student loan lines. Are the percentages what you expect, and is your employer's pension contribution showing on top rather than reducing your pay?
- Read the year-to-date figures. These cumulative totals should climb steadily. A sudden jump or reset can flag a payroll error.
If something looks off, raise it with your employer or payroll team first, as most issues are simple coding fixes. For business owners running payroll, getting tax codes, NI and pension deductions right every month is exactly the sort of thing our bookkeeping and payroll support is built to handle.
Running payroll for your team and want it off your plate? Book a free 20-minute call with a Zmartly accountant and we'll make sure every payslip is accurate, compliant and on time.
Whether you run a limited company with staff or you're a sole trader taking on your first employee, clean payroll protects you and your people.
Frequently asked questions
Why is my take-home pay lower than my salary divided by 12?
Because your salary is your gross pay, and several deductions come out before you're paid. Income Tax and National Insurance are the main two, with pension contributions and any student loan repayment on top. The gap between gross and net is normal; what matters is that each deduction is correct for your situation.
What does the tax code 1257L mean?
It means you get the standard Personal Allowance of £12,570 of tax-free pay for 2025/26 (1257 x 10), and the L shows you're entitled to that standard allowance. It's the most common code for people with one job and no unusual circumstances.
Is National Insurance the same as Income Tax?
No. They're separate charges with different thresholds and rules. For 2025/26 you pay 8% Class 1 National Insurance on earnings between £12,570 and £50,270 a year, and 2% above that, while Income Tax uses its own bands. National Insurance is usually worked out on each pay period alone, whereas PAYE Income Tax is spread across the year.
Why has my employer's pension contribution appeared on my payslip?
Many payslips show the employer's pension contribution for transparency, even though it doesn't reduce your take-home pay. Only your own contribution comes out of your earnings. If an employer contribution seems to be lowering your net pay, query it with payroll.
What should I do if my payslip looks wrong?
Start with your employer or payroll team, as most problems are an out-of-date tax code or a data-entry slip that's quick to fix. If it's a tax code issue, HMRC can update it directly. Keep your payslips, because they're your evidence if you ever need to reclaim overpaid tax.
