How to Read Your Payslip: Tax Code, NI and Pension

Your payslip takes income tax, National Insurance, pension contributions and, if you have one, a student loan repayment out of your gross pay. National Insurance and student loan deductions follow fixed rates and thresholds. Income tax depends on your tax code, which HMRC sends your employer and which can be wrong, so it's the first line to check. Your pension line is the one you can change most easily, and how it's taken changes the other lines too.

This guide is for employees paid through PAYE in the 2026/27 tax year. If you're self-employed, you pay through Self Assessment instead and most of this won't appear on anything you receive.

A £35,000 payslip, line by line

Your employer must give you a payslip on or before payday. GOV.UK says it must show your pay before and after deductions, the deductions that can change each time, and your hours if your pay depends on them. Here's what our take-home pay calculator gives for someone in England earning £35,000, paying 5% of salary into a workplace pension through a net pay arrangement, with a Plan 2 student loan. It works on yearly figures divided by 12, so a real payslip can be a few pence out.

Note the pension in this example is 5% of the whole salary. Many automatic enrolment schemes use 'qualifying earnings' instead, which GOV.UK puts at pay between £6,240 and £50,270 a year, so your pension line may be smaller than 5% of gross.

Your tax code: the line that can be wrong

According to HMRC's guidance on tax codes, 1257L is the code used for most people with one job or pension. The number is your tax-free Personal Allowance of £12,570 with the last digit dropped. The L means you get the standard allowance. An S at the front means Scottish rates; a C means Welsh rates.

HMRC starts with that allowance and takes off anything it wants to collect through your pay, such as company benefits or untaxed income. Its own example: £1,570 of employer medical insurance turns 1257L into 1100L. If your code is lower than 1257L, find out why. A benefit you no longer get, or an estimate of income you don't have, will overtax you every month until it's fixed.

Watch for the suffixes. GOV.UK says you're on an emergency tax code if your code ends in W1, M1 or X, or your payslip says NONCUM. That means tax is worked out on that month's pay alone, as if you earned it every month, rather than on your pay so far this tax year. It usually happens when you start a new job without a P45. HMRC says it can take up to 35 days to update your code once it has your details from both employers. After that, if the code still looks wrong, contact HMRC.

Other codes aren't always mistakes. BR (all at basic rate) or D0 is normal on a second job, because your allowance is used by the first.

National Insurance and student loans: fixed rules

For 2026/27, employees pay 8% National Insurance on earnings between £1,048 and £4,189 a month, and 2% above that, according to HMRC's rates and thresholds for employers. There's no allowance to claim and no code to check. If it looks wrong, ask payroll to show you the calculation.

Student loan repayments are 9% of pay above your plan's threshold (6% for a Postgraduate Loan). GOV.UK gives the monthly thresholds as £2,241 for Plan 1, £2,448 for Plan 2, £2,816 for Plan 4 and £2,083 for Plan 5. Because the test is each pay period, a month with overtime or a bonus shows a bigger deduction. Check the plan type on your payslip matches your loan; our student loan calculator shows what each plan should cost you.

Your pension: the line you control

How your pension is taken changes more than the pension line. Run the same £35,000 example three ways in the calculator:

• Net pay: £145.83 pension, £344.67 tax, take-home £2,234.52.
• Relief at source: £116.67 pension, £373.83 tax, take-home £2,234.52. Your provider claims the other 20% from HMRC, so £145.83 still reaches your pot. Same take-home, different payslip.
• Salary sacrifice: NI falls to £137.87 and the student loan to £28.99, because your salary itself is lower. Take-home rises to £2,259.31 for the same £145.83 into your pension.

That £24.79 a month is a real gain, and it's why we'd ask HR whether salary sacrifice is on offer before raising your contribution. It won't stay this generous for everyone: HM Treasury has announced that from April 2029 only the first £2,000 a year of employee salary sacrifice contributions will be free of National Insurance. To see the full cost of paying in more, including your employer's share, use the pension contribution calculator.

What to do now

1. Next 10 minutes: find your tax code on your latest payslip. Is it 1257L (or S1257L, C1257L)? Does it end in W1, M1, X or NONCUM?
2. Today: if the code is different, use GOV.UK's 'check what your tax code means' tool to see how it was worked out. Check your student loan plan type while you're there.
3. This week: ask payroll or HR how your pension is taken and whether salary sacrifice is available. Then put your real take-home figure into the 50/30/20 budget calculator.

When the obvious fix is the wrong one

A code below 1257L isn't automatically an error. If you've started getting a company benefit such as health cover, HMRC is meant to collect the tax on it through your code. Getting it 'fixed' back to 1257L just moves the bill to later.

Salary sacrifice has limits too. It lowers your contractual salary, and anything worked out from that figure, such as some workplace benefits, may fall with it. And if you earn below your student loan threshold, the loan saving shown above disappears. Check with your employer before you sign anything, and speak to a regulated adviser if a decision involves large sums.

Sources

1. GOV.UK (HM Revenue & Customs): Tax codes: What your tax code means
2. GOV.UK (HM Revenue & Customs): Tax codes: Emergency tax codes
3. GOV.UK (HM Revenue & Customs): Rates and thresholds for employers 2026 to 2027
4. GOV.UK (HM Treasury): Changes to salary sacrifice for pensions from April 2029