Your Payslip: What's Actually Being Taken and Why
Last reviewed 21 July 2026
Quick takeYour payslip isn't one number — it's four separate deductions, each with its own rules, and checking them can genuinely put money back in your pocket.
Explanation
Gross vs net
Your gross pay is what you're paid before anything is taken out. Your net pay — what actually lands in your account — is gross pay minus Income Tax, National Insurance, and (if applicable) pension contributions and student loan repayments. Figures below are UK 2026/27 tax year rates.
Income Tax
Money the government takes directly from your pay, based on how much you earn. You have a Personal Allowance of £12,570 — tax-free earnings each year. Above that, the basic rate is 20%, up to £50,270. Your tax code (e.g. "1257L") tells your employer how much of your pay to treat as tax-free. If it's wrong — common with a new job or two jobs — you can be taxed incorrectly, so it's worth checking rather than assuming HMRC (the government department that collects tax) got it right.
Worked example: on £20,000 a year, you pay 0% on the first £12,570 and 20% on the remaining £7,430 — £1,486 in Income Tax, not 20% of the full salary.
National Insurance (NI)
A separate deduction that mainly funds the NHS, the State Pension, and contributory benefits like Jobseeker's Allowance and sick pay. You pay 8% on earnings between £12,570 and £50,270, and 2% above that.
Worked example: on the same £20,000 salary, NI is 8% of £7,430 = £594.
Pension auto-enrolment
A pension is a pot you and your employer pay into now, invested over time, for income once you stop working — separate from the State Pension NI contributes toward. If you're 22+ and earn over £10,000 a year, your employer must auto-enrol you unless you opt out. Minimum contribution: 8% of qualifying earnings, split at least 5% you / 3% employer, on top of your salary. Opting out means losing your employer's share completely — turning down free money.
Put together
On a £20,000 salary: roughly £1,486 tax + £594 NI ≈ £2,080 gone before pension — take-home around £17,920, not £20,000. This gap is why your "salary" and your actual income are never the same number.
Glossary
›Gross pay
What you're paid before anything is taken out.
›Net pay
What actually lands in your bank account — gross pay minus Income Tax, National Insurance, and (if applicable) pension contributions and/or student loan repayments.
›Personal Allowance
The amount you can earn in a tax year before paying any Income Tax at all — £12,570 for the 2026/27 tax year.
›Tax code
Shown on your payslip (e.g. '1257L'), it tells your employer how much of your pay to treat as tax-free — 1257 roughly represents £12,570 of allowance. If it's wrong (common when starting a new job or having two jobs), you can be taxed incorrectly.
›HMRC
His Majesty's Revenue and Customs — the government department that collects tax.
›Income Tax
Money the government takes directly out of your pay, based on how much you earn above your Personal Allowance — the basic rate is 20% on earnings up to £50,270. Worked example: on a £20,000 salary, you pay 0% on the first £12,570 and 20% on the remaining £7,430 — that's £1,486 in Income Tax for the year, not 20% of your full salary.
›National Insurance (NI)
A separate deduction from Income Tax that mainly funds the NHS and the State Pension, plus contributory benefits like Jobseeker's Allowance and statutory sick pay. As an employee you pay 8% on earnings between £12,570 and £50,270, and 2% above that. Worked example: on a £20,000 salary, NI is 8% of £7,430 = £594.40 for the year.
›Pension (auto-enrolment)
A pot of money you and your employer pay into now, invested over time, for income once you stop working — separate from and on top of the State Pension NI contributes toward. If you're 22+ and earn over £10,000 a year, your employer must automatically enrol you unless you opt out. The minimum total contribution is 8% of qualifying earnings, split at least 5% from you and at least 3% from your employer. Opting out means losing the employer's 3% completely.
›P45
The tax summary document your previous employer gives you when you leave a job.
›Emergency tax code
Taxes you as if you have no Personal Allowance at all — common when an employer hasn't yet received your P45 from a previous job.
Why This Matters Now
- First payslip looked smaller than expected? This is usually why.
- New job, or two jobs at once? You could be on the wrong tax code without knowing — they do get things wrong.
- Not checking your payslip means you could be overpaying for months without noticing.
UK Example
Callum, 19, started his first full-time job in May on £24,000. His first payslip showed far less take-home than he expected — turned out he'd been put on an emergency tax code, which taxes you as if you have no Personal Allowance at all, common when an employer hasn't yet received your P45 from a previous job. He was owed a refund, but only found out because he checked his payslip against a gov.uk tax calculator, rather than assuming the number was correct.
Practical Steps
- Check your tax code on every payslip — 1257L is the standard code for most people with one job and no unusual circumstances.
- If you've started a new job or have more than one job, check you're not on an emergency tax code without reason.
- Understand your payslip breakdown: gross pay, tax, NI, and pension should each be a separate, visible line — if they're not, ask HR/payroll.
- Don't opt out of your workplace pension without understanding you're giving up your employer's matched contribution, not just your own.
- If a deduction looks unfamiliar or wrong, query it with payroll directly rather than assuming it's correct — errors are common, especially in your first few payslips at a new job.
Quiz
1. What is the UK Personal Allowance for the 2026/27 tax year — the amount you can earn before paying any Income Tax?
2. Someone earns £20,000 gross in a year. Roughly how much Income Tax do they pay?
3. What's the key difference between how Income Tax and National Insurance are calculated on the same salary?
4. What is the minimum total pension auto-enrolment contribution, and how is it typically split?
5. If someone opts out of their workplace pension, what do they actually lose?
6. Why might someone be put on an 'emergency tax code' when starting a new job?
7. On a £20,000 salary, roughly how much is taken in National Insurance for the year (8% on earnings above £12,570)?
8. Why is checking your own payslip against a tax calculator a genuinely useful habit, not just paranoia?