Your First UK Payslip: Tax Code, National Insurance and What the Deductions Mean

In the UK your employer takes income tax and National Insurance from your pay before it reaches you, through a system called PAYE, and shows it on your payslip. How much tax is taken depends on your tax code, which HMRC gives your employer. Most people's code is 1257L. A new starter is often put on an emergency code until HMRC has the right information, so the first payslips are the ones to check.

What is on a payslip

• Gross pay. Your pay before anything is taken off.
• Income tax. Taken under PAYE according to your tax code.
• National Insurance. Taken once your pay is above a threshold. It builds your entitlement to the State Pension and some benefits.
• Pension. Your contribution to a workplace pension, if you are enrolled.
• Student loan. Only if you have a UK student loan being repaid through pay.
• Net pay. What reaches your bank account.
• Year to date figures, your tax code and your National Insurance number.

Every employee has the right to a payslip that shows these, on or before payday.

Reading your tax code

• 1257L is the most common code. The number is your tax-free pay in the year divided by ten; L means the standard allowance.
• W1, M1 or X after the code means it is an emergency code, applied to each pay period on its own. Common for a new starter.
• BR means all the pay from this job is taxed at the basic rate, usually a second job.
• 0T means no tax-free allowance is given in this job.
• S or C at the start means Scottish or Welsh income tax rates apply.

Starting a job without a P45

A P45 is the form a previous UK employer gives you when you leave. If you have just arrived, you will not have one. Your new employer asks you to complete a starter checklist instead, and may use an emergency code until HMRC sends the right one. If too much tax is taken while that happens, it is normally adjusted through later pay or by HMRC after the tax year ends.

National Insurance number

You need a National Insurance number to make sure your contributions are recorded against you. If you do not have one yet, you can usually start work while you apply, as long as you can prove your right to work. You apply on GOV.UK.

Workplace pension

If you are 22 or over and earn above a set amount, your employer must enrol you in a workplace pension and contribute to it. You can opt out, but you then give up the employer's contribution too.

The tax year

The UK tax year runs from 6 April to 5 April. At the end of it your employer gives you a P60 showing your pay and tax for the year. Keep it.

How Wisemium helps

Wisemium's Tax and pay keeps each job with its pay frequency and tax code. Enter the figures from a payslip and it explains each deduction and shows where the figures differ from what the code would normally produce, with where to ask HMRC. It does not decide whether a code is right; HMRC does. Tax and pay is kept in your account, so it asks you to sign in or create a free account first.