What is the difference between gross pay and net pay on a UK payslip?

Gross pay is the total amount earned before any deductions - it includes basic salary, overtime, bonus, commission, holiday pay and any statutory payments such as SSP or SMP. Net pay (sometimes called take-home pay) is what hits your bank account after Income Tax, employee National Insurance, any pension contribution, student loan repayment, and any other deductions have been taken off. The gap between the two is the sum of the deductions listed in the middle of the payslip.

What does 1257L mean on my payslip?

The number 1257 represents tax-free allowance of £12,570 divided by 10, which is the standard Personal Allowance for the 2026/27 tax year. The letter L means you are entitled to the standard Personal Allowance with no adjustments. If you see 1257L on every payslip in the year, your tax code is the default and you are paying tax only on earnings above £12,570. Other letters change the calculation - for example BR taxes everything at 20%, 0T applies no Personal Allowance, and K codes add notional income.

How is Income Tax calculated on each payslip?

Each payslip uses cumulative PAYE: HMRC works out the tax-free allowance you have used so far in the tax year, applies the bands to your year-to-date taxable pay, and the tax owed for the period is the difference between the cumulative tax due and the cumulative tax already paid. This is why a one-off bonus in month 8 does not over-tax you - the cumulative system reconciles automatically over the year. Week 1 / Month 1 tax codes are the exception and tax each period in isolation.

Why does my NI deduction change month to month?

Unlike Income Tax, National Insurance is calculated each pay period in isolation, not cumulatively. The Primary Threshold (£12,570 a year, equivalent to £1,048 a month) and Upper Earnings Limit (£50,270 a year, £4,189 a month) apply to each months earnings on their own. So if you earn the same monthly salary the NI is identical each month, but a bonus that pushes a single months pay above the UEL temporarily moves the excess to the 2% upper rate just for that month, then the next month resets.

Is the year-to-date (YTD) figure on a payslip cumulative across the tax year?

Yes - the YTD columns track totals from 6 April of the current tax year through to the date the payslip is issued. By month 12 (March payslip) the YTD totals should match the figures HMRC reports on your P60, which is issued by 31 May after the end of the tax year. If you change employer mid-year the YTD columns reset to zero on the first payslip from the new employer because YTD is per-employer; HMRC reconciles your full year via the P45 you handed over.

What if my payslip says BR - am I being overcharged?

BR taxes every pound of that employments earnings at 20% with no Personal Allowance applied. It is the default code for a second job, a pension you are drawing while still working, or any employment where HMRC has not been given the P45 from a previous employer yet. If BR is correct (because your Personal Allowance is fully used at the main employer) you are not being overcharged. If BR appears at your only or main job, you almost certainly are - log into your Personal Tax Account at gov.uk and request a tax code review.

Can I challenge a payslip error retrospectively?

Yes. The Employment Rights Act 1996 Section 8 makes payslip itemisation a statutory right, and Sections 13 to 27 give workers a right to recover unauthorised deductions. For Income Tax errors caused by a wrong code, HMRC will refund overpaid tax automatically when the code is corrected (usually via the next payslip) or via P800 after year end. The general HMRC time limit for reclaiming overpaid tax is four tax years from the end of the year the overpayment relates to.

What is the NI category letter and which one applies to most employees?

The NI category letter determines which Class 1 NI rates apply to your earnings. Category A is the standard adult employee rate (8% main / 2% upper) and applies to the majority of UK employees aged between 21 and State Pension age. Other common letters: H is apprentices under 25, M is employees under 21, V is veterans in their first year of civilian employment, C is employees over State Pension age (employee NI zero, employer still pays), and B / J / Z cover reduced-rate married women, deferment, and under-21 deferment respectively.

UK Payslip Explained (2026/27)

A UK payslip is a legal document. Under the Employment Rights Act 1996, Section 8, every employer must issue an itemised pay statement at or before the time wages are paid, showing gross pay, all fixed and variable deductions, the amounts taken for each deduction, and net pay. Since 6 April 2019 the same right extends to all workers (not just employees), and where pay varies by hours, the number of hours paid at the variable rate must be shown explicitly. This page decodes every line you will see on a typical UK payslip.

None of this is tax advice. Every figure cited below is the statutory 2026/27 amount, traceable to the gov.uk and legislation.gov.uk sources cited in the article schema.

1. The legal requirements - what an employer must show

Section 8 of the Employment Rights Act 1996 sets out the minimum content of a payslip. It must include the gross amount of wages, the net amount of wages, the amount and purpose of any variable deduction (such as Income Tax, employee National Insurance and student loan), and the amount and purpose of any fixed deduction (or, alternatively, a separate statement of fixed deductions issued at least annually). The 2019 amendment added a further requirement: where the worker is paid by reference to time worked, the number of hours for which they are being paid must appear on the payslip.

Payslips can be paper or electronic - email, PDF, or a self-service HR portal all qualify - and must be issued before or on payday. Failure to comply gives the worker a right to bring a claim at an employment tribunal under Section 11. If deductions have been made without proper authorisation, Sections 13 to 27 give a separate right to recover the unauthorised amount.

2. The identification block

The top of every UK payslip carries an identification block that ties the document to a specific employment and a specific pay period. Expect to see, in some order:

Employee name and address - matches the employer's records and is what HMRC uses if the payslip is ever produced as evidence.
National Insurance number - format two letters, six digits, one letter (e.g. AB123456C). HMRC uses this to track NI contributions toward your State Pension record.
Payroll number or employee ID - internal to the employer; useful if you need to query the payslip with HR.
Tax code - currently 1257L for most UK employees on the standard Personal Allowance. See section 10 below for the full letter glossary.
NI category letter - usually A for the majority of working-age employees. Affects which rates apply to NI deductions.
Pay period - the dates covered by the payslip, typically "1 March to 31 March" for a calendar-month cycle, or week numbers 1 to 52 for weekly payrolls.
Tax week or tax month - the HMRC tax week or month number. Tax week 1 starts 6 April; month 1 covers 6 April to 5 May. Month 12 is March, the final month of the tax year.
Payment date - the date funds are due to clear in the employee's bank account.

3. Gross pay section

Gross pay is the total amount earned before any deductions. Most payslips break it down into separate lines so the composition is auditable:

Basic salary or basic pay - the contractual regular amount, typically annual salary divided by 12 for monthly payrolls.
Overtime - extra hours worked at the contractually-agreed overtime rate. Treated as ordinary earnings for tax and NI - the "overtime is taxed more" myth is wrong; it is taxed at your marginal rate, the same as any other pound of pay.
Bonus - one-off performance pay. Subject to PAYE Income Tax and Class 1 employee NI on payment. Bonuses can push a single month's pay above the £4,189 NI Upper Earnings Limit, briefly switching that month's NI to the 2% upper rate before resetting next month.
Commission - sales-linked pay, taxed identically to basic pay.
Holiday pay - earnings during paid leave. Listed separately for record-keeping but taxed as ordinary earnings.
Statutory pay - SSP (Statutory Sick Pay, £118.75 a week for 2026/27), SMP / ShPP / SPP / SAP (statutory parental pay, 90% of average weekly earnings for the first 6 weeks of maternity, then £187.18 a week), or any other statutory entitlement that the employer is recovering from HMRC. All statutory pay is taxable and subject to NI in the same way as regular wages.

4. Income Tax deductions

The Income Tax line shows the PAYE tax taken for the period. It is computed by HMRC's cumulative algorithm: at week 30 of the tax year, the system asks "how much tax should have been paid on year-to-date pay so far?" and the line on this payslip is the difference between that cumulative figure and what has already been paid in weeks 1 to 29. The same logic runs each month (or week) of the year.

For an employee on tax code 1257L earning £35,000 a year, the monthly Income Tax is roughly £374, derived as follows: taxable pay £35,000 minus £12,570 Personal Allowance = £22,430 in the basic-rate band, taxed at 20% = £4,486 a year, or about £373.83 a month. Variations in the line month to month are almost always caused by a tax code change, a bonus, or a Week 1 / Month 1 emergency code applied because HMRC has not yet seen a P45 from the previous employer.

5. National Insurance deductions

Employee Class 1 National Insurance is calculated each pay period independently - it is not cumulative like Income Tax. The 2026/27 bands apply per period:

£0 - £1,048 a month (£12,570 a year): no NI.
£1,048 - £4,189 a month (£12,570 - £50,270 a year): 8% main rate.
Above £4,189 a month (above £50,270 a year): 2% upper rate.

Because NI is per-period, a £35,000 employee paid monthly sees the same NI every month: (£35,000 - £12,570) x 8% / 12, around £149.53 a month. Someone receiving a bonus that pushes their month's pay above £4,189 will see a smaller-than-expected NI bump that month, because the excess crosses from the 8% to the 2% rate - this often surprises bonus recipients who expect symmetric tax and NI behaviour.

6. Pension contributions

The pension line shows the employee's contribution being deducted at source. The mechanics differ depending on the scheme structure:

Salary sacrifice - the employee agrees to a lower gross salary in exchange for the employer paying the sacrificed amount directly into the pension. The sacrificed amount never enters taxable income, so the saving is at the employee's full marginal rate (Income Tax + employee NI) and the employer also saves their Class 1 secondary NI on the sacrificed amount.
Net pay (occupational pension) - the employee's contribution is deducted from gross pay before Income Tax is calculated, but after NI. Tax relief is given in full at the employee's marginal rate, but NI is still due on the contribution.
Relief at source (RAS) - the employee's contribution is deducted from net pay (after tax and NI), and the pension provider claims back basic-rate tax (20%) from HMRC and adds it to the pot. Higher- and additional-rate taxpayers must claim the extra 20% or 25% through Self Assessment.

A separate line typically shows the employer contribution. It does not affect the employee's net pay but is required to appear on auto-enrolment payslips as evidence of compliance with the minimum 3% employer / 8% combined rule.

7. Student loan repayments

If you are repaying a student loan, the payslip shows a line labelled "Student Loan" or "SLD" with the plan number. The five UK plans differ in threshold and repayment rate, and the threshold applies per pay period (like NI), not cumulatively:

Plan 1 - threshold £26,065 a year (£501 a week), 9% above. England / Wales pre-September 2012, plus all Northern Ireland.
Plan 2 - threshold £28,470 a year (£547 a week), 9% above. England / Wales started September 2012 to July 2023.
Plan 4 - threshold £32,745 a year (£629 a week), 9% above. Scotland.
Plan 5 - threshold £25,000 a year (£480 a week), 9% above. England / Wales started from August 2023.
Postgraduate Loan - threshold £21,000 a year (£403 a week), 6% above. Can stack on top of any undergraduate plan.

Repayments start the April after graduation. If the payslip shows a deduction but you finished your course only months ago, request a Stop Notice through your Personal Tax Account and the deduction will cease on the next payroll cycle. The Student Loans Company also reconciles annually and refunds any overpayment.

8. Other deductions

Beyond tax, NI, pension and student loan, a payslip may carry any number of additional deductions, typically grouped under "Other" or listed by name:

Attachment of Earnings Order (AEO) or Deduction from Earnings Order (DEO) - court- ordered deductions for unpaid fines, council tax arrears, Child Maintenance Service liability, or commercial debt. The employer has a statutory duty to apply the order.
Union dues - trade union subscription deducted at source under a check-off agreement.
Childcare voucher - legacy scheme closed to new entrants in October 2018 but still operating for joined-before-then employees, who continue to receive up to £55 a week tax and NI free via salary sacrifice.
Cycle to Work - salary sacrifice for a bicycle and safety equipment, typically over 12 months.
Season ticket loan - interest-free loan for a public transport season ticket, repaid by monthly deduction over the ticket period.
Give As You Earn (GAYE) / Payroll Giving - charity donation deducted from gross pay before Income Tax, giving the donor full marginal-rate relief at source. NI is still due. A £100 GAYE donation costs a higher-rate taxpayer £60.
Health insurance, gym membership - deducted from net pay if treated as an after-tax employee benefit, or appears as a Benefit in Kind (BIK) on the P11D if the employer pays gross.

9. Year-to-date (YTD) columns

Every UK payslip carries a parallel set of "year-to-date" columns alongside the period figures. YTD shows the cumulative total from 6 April of the current tax year up to and including the period the payslip covers. By the March payslip (Month 12), the YTD totals should match exactly the figures the employer reports to HMRC at year end and that appear on the employee's P60.

YTD reconciliation matters most when changing jobs mid-year. The leaving employer issues a P45 listing the leaver's YTD gross, YTD tax and the tax code at leaving date. The new employer keys these figures into payroll so cumulative PAYE continues seamlessly. Without a P45, HMRC's default is a Week 1 / Month 1 emergency code, which tends to over-tax until reconciled. Checking the first payslip from a new employer against the leaving P45 is the single most useful year-end manoeuvre for most PAYE employees.

10. Tax code letters - what each one means

The number before the letter is the tax-free allowance divided by 10. The letter describes the adjustment. The most common codes for 2026/27:

1257L - standard Personal Allowance (£12,570), no adjustments. The default for the majority of UK employees.
BR - Basic Rate. Every pound of this employment is taxed at 20%, with no Personal Allowance. Standard for a second job or pension drawdown.
0T - zero Personal Allowance. Tax is deducted across all bands without any tax-free slice. Common when an employer has incomplete starter information.
OT - same as 0T but with the letter O, used by some employers in print.
D0 - Higher Rate. Everything taxed at 40%. Used for a high-paid second employment.
D1 - Additional Rate. Everything taxed at 45% (or 48% Scotland top rate).
NT - No Tax. Used in narrow cases like certain non-residents and seafarers.
K500 - K-prefix means the employee owes HMRC more in non-coded income (state pension, BIK) than the Personal Allowance covers. The number after K is added to taxable income, so K500 adds £5,000 of notional income on top of pay each year.
S prefix - Scottish taxpayer (e.g. S1257L, SBR). Triggers Scottish income tax bands instead of the rest-of-UK bands.
C prefix - Welsh taxpayer (e.g. C1257L). Bands currently identical to rest-of-UK but flagged in case Welsh Parliament diverges in the future.

The full glossary, with worked examples for each, lives at the tax code explainer.

11. NI category letters

The NI category letter sits beside the NI number on the payslip. It determines which NI rates apply to your earnings. The full set, all UK-wide:

A - standard adult employee. 8% main, 2% upper. The default for most working-age employees.
M - employees under 21. Employee rates as A, but employer rate 0% up to the Upper Secondary Threshold (£50,270 a year).
V - veterans in their first year of civilian employment after leaving HM Forces. Employer rate 0% up to the Veterans Upper Secondary Threshold.
H - apprentices under 25. Same employer relief as M up to the Apprentice Upper Secondary Threshold.
C - employees over State Pension age. Employee NI is 0; employer NI is still due.
X - employees who do not have to pay NI (typically under 16).
B - reduced-rate married women / widows (legacy category, closed to new entrants in 1977 but a few contributors remain).
J - deferment, used when the employee already pays NI from another job above the Annual Maximum.
Z - under-21 deferment, the combined case of M and J.

12. Common payslip errors

Most payslip errors come from a small set of recurring causes:

Wrong tax code - new starter without P45 defaulted to BR or 0T week-one. Triggers over-deduction until HMRC issues the correct code, usually within 4 to 6 weeks of starting.
Missed pension contribution - employer forgot to enrol on the auto-enrolment date, or a salary- sacrifice agreement was not actioned in payroll. The Pensions Regulator can impose fines on the employer; the employee should request back-dated contributions to be regularised.
Wrong NI category letter - common examples include keeping category A on an apprentice (should be H) or an under-21 (should be M), or failing to switch a contributor to C in the pay period they reach State Pension age. The employee continues to pay correct NI; only the employer pays more than necessary.
Student loan deduction on the wrong plan - common after starting a new job before HMRC has notified the employer of the correct plan. Reconciles to the right plan once HMRC sends the SL1 / PGL1 start notice. Excess is refunded by the Student Loans Company at year end.
Statutory pay calculated on the wrong average - SMP, ShPP and other statutory pay use a specific 8-week average weekly earnings calculation under HMRC rules. An average that excludes a bonus paid in the relevant window produces lower statutory pay than the employee is entitled to.

13. Worked example - £35,000 salary, 5% pension, tax code 1257L

Below is the same calculation rendered as a mock monthly payslip. All figures come from the salary engine on this site - the same engine that powers the salary calculator - which is driven by the 2026/27 TaxRuleset cited at the top of this page. Assumptions: England rest-of-UK bands, NI category A, no student loan, salary-sacrifice workplace pension at 5%, paid monthly.

Line	Period (month)	Year to date (month 12)
Basic salary (gross)	£2,917	£35,000
Pension salary sacrifice (5%)	-£146	-£1,750
Taxable pay	£2,771	£33,250
Income Tax (PAYE, code 1257L)	-£345	-£4,136
Employee NI (category A)	-£138	-£1,654
Net pay (take-home)	£2,288	£27,460
Employer NI (informational, not deducted)	£353	£4,238
Effective tax rate (Income Tax + NI / gross)	16.5%

The same employee with no pension contribution would have a higher take-home figure today but no retirement saving. The 5% sacrifice diverts £1,750 a year into the pension pot at a marginal cost of roughly £1,260 in lost net pay (because the sacrificed pound escapes both 20% Income Tax and 8% employee NI). For a higher earner above the £100,000 Personal Allowance taper, the equivalent saving climbs to around 62 pence in the pound - see the 60% tax trap explainer for the worked maths.

Frequently asked questions

What is the difference between gross pay and net pay on a UK payslip?: Gross pay is the total amount earned before any deductions - it includes basic salary, overtime, bonus, commission, holiday pay and any statutory payments such as SSP or SMP. Net pay (sometimes called take-home pay) is what hits your bank account after Income Tax, employee National Insurance, any pension contribution, student loan repayment, and any other deductions have been taken off. The gap between the two is the sum of the deductions listed in the middle of the payslip.
What does 1257L mean on my payslip?: The number 1257 represents tax-free allowance of £12,570 divided by 10, which is the standard Personal Allowance for the 2026/27 tax year. The letter L means you are entitled to the standard Personal Allowance with no adjustments. If you see 1257L on every payslip in the year, your tax code is the default and you are paying tax only on earnings above £12,570. Other letters change the calculation - for example BR taxes everything at 20%, 0T applies no Personal Allowance, and K codes add notional income.
How is Income Tax calculated on each payslip?: Each payslip uses cumulative PAYE: HMRC works out the tax-free allowance you have used so far in the tax year, applies the bands to your year-to-date taxable pay, and the tax owed for the period is the difference between the cumulative tax due and the cumulative tax already paid. This is why a one-off bonus in month 8 does not over-tax you - the cumulative system reconciles automatically over the year. Week 1 / Month 1 tax codes are the exception and tax each period in isolation.
Why does my NI deduction change month to month?: Unlike Income Tax, National Insurance is calculated each pay period in isolation, not cumulatively. The Primary Threshold (£12,570 a year, equivalent to £1,048 a month) and Upper Earnings Limit (£50,270 a year, £4,189 a month) apply to each months earnings on their own. So if you earn the same monthly salary the NI is identical each month, but a bonus that pushes a single months pay above the UEL temporarily moves the excess to the 2% upper rate just for that month, then the next month resets.
Is the year-to-date (YTD) figure on a payslip cumulative across the tax year?: Yes - the YTD columns track totals from 6 April of the current tax year through to the date the payslip is issued. By month 12 (March payslip) the YTD totals should match the figures HMRC reports on your P60, which is issued by 31 May after the end of the tax year. If you change employer mid-year the YTD columns reset to zero on the first payslip from the new employer because YTD is per-employer; HMRC reconciles your full year via the P45 you handed over.
What if my payslip says BR - am I being overcharged?: BR taxes every pound of that employments earnings at 20% with no Personal Allowance applied. It is the default code for a second job, a pension you are drawing while still working, or any employment where HMRC has not been given the P45 from a previous employer yet. If BR is correct (because your Personal Allowance is fully used at the main employer) you are not being overcharged. If BR appears at your only or main job, you almost certainly are - log into your Personal Tax Account at gov.uk and request a tax code review.
Can I challenge a payslip error retrospectively?: Yes. The Employment Rights Act 1996 Section 8 makes payslip itemisation a statutory right, and Sections 13 to 27 give workers a right to recover unauthorised deductions. For Income Tax errors caused by a wrong code, HMRC will refund overpaid tax automatically when the code is corrected (usually via the next payslip) or via P800 after year end. The general HMRC time limit for reclaiming overpaid tax is four tax years from the end of the year the overpayment relates to.
What is the NI category letter and which one applies to most employees?: The NI category letter determines which Class 1 NI rates apply to your earnings. Category A is the standard adult employee rate (8% main / 2% upper) and applies to the majority of UK employees aged between 21 and State Pension age. Other common letters: H is apprentices under 25, M is employees under 21, V is veterans in their first year of civilian employment, C is employees over State Pension age (employee NI zero, employer still pays), and B / J / Z cover reduced-rate married women, deferment, and under-21 deferment respectively.