A payslip is an important document that provides a detailed breakdown of your pay for a specific period. Understanding what each component of a payslip represents is essential for managing your personal finances and ensuring you are receiving the correct amount of pay.
By the end of this article, you will clearly understand your payslip and be able to make informed decisions about your finances.
It is a legal requirement for all employers to provide their employees with a payslip, and understanding your payslip is crucial for several reasons.
Technically, you only need to keep your payslips until you get your P45/P60, but His Majesty’s Revenue and Customs (HMRC) recommends that all employees keep their payslips for as long as they can. This can be either as online payslips or physical payslips.
You should retain your payslip for at least 22 months after the tax year the tax return is for
Your payslip will contain personal information such as
Your pay period is the amount of time that your pay covers. For example, weekly, fortnightly, four-weekly, and monthly. It is important to understand your pay period to budget accordingly and ensure you are being paid the right amount.
This is the total amount of money you earn before any deductions are taken. This includes your basic pay and any overtime, bonuses, or commission. Gross pay is the starting point for calculating your taxable pay and deductions.
Your company’s sick pay policy and length of illness will determine if they will pay Statutory Sick Pay.
Your employer will deduct taxes, NI, and student loans because it is treated as salary.
Your contract may also provide occupational sick pay.
If you’re receiving Statutory Maternity Pay because you had a baby, your payslip will reflect this, same with shared Parental Leave and Statutory Adoption Pay.
Your employer will deduct taxes, NI, and student loans because it is treated as salary
This is the amount of money you take home or hits your bank account after all deductions have been made.
Taxable pay is the portion of your earnings subject to income tax. The amount of taxable pay will depend on your personal Allowance, tax code, and other benefits accessed through salary sacrifice.
Your pay statement will show your gross pay, net pay, and total deductions. Some employers may provide a separate statement for deductions, showing the different amounts taken out for each type of deduction, such as income tax or pension contributions.
Your payslip includes different amounts that are taken out of your gross pay. These are known as deductions and include the following:
This section will go through the different types of deductions and what they mean for you.
These are deductions that don’t change from payday to payday – for example, union dues.
Variable deductions are amounts that can change each pay period. These include pension scheme contributions, tax, National Insurance. and personal pension contributions.
Your tax code will be sent to you by HMRC, and it is used to determine the amount of taxable pay and tax-free pay you receive each pay period, for example, 1257L.
It’s important to understand what each of these codes and letters means to ensure you’re receiving the right amount of pay each month. If you have any questions or concerns, you should contact your payroll department or HMRC for clarification. If the code is wrong, you could pay too much or too little tax.
List of tax codes from gov.uk
Your employer will use an emergency tax code if they can’t find your correct tax code. This could happen when you start a new job or if you used to work for yourself.
An emergency tax code assumes that you are eligible for the basic tax rate of 20% on everything above the basic allowance currently £12,570.
If you are eligible for any other allowances or tax breaks, you might not get them until the tax office gives you the right tax code.
HMRC should fix the problem and update your payments on their own, but your paycheck might look different for a month or two.
There are different ways to write an emergency tax code using the letters and numbers M1, W1, and X. For examples 1257 W1 , 1257 M1, 1257 X
This means that your income is taxed at 20%, and you don’t get your tax-free basic Personal Allowance.
For example, HMRC might have put your personal Allowance toward one of your jobs even though you have two.
Most of the time, this is because you have more than one way to make money and you are taxed at a higher rate (D0) or additional rate (D1)
This means you still owe taxes from the past, or you get money or benefits that can’t be taxed until you get them. For example State Pension.
Your tax deduction is dependent on your tax code and income tax rate.
The basic income tax rate in the UK will go down to 19% in April 2023.
There are different income tax bands. This means that the amount of Income tax you pay goes up as your income does.
In the table below, you can see how much Income tax you pay based on how much money you make.
Remember that you don’t pay the same income tax on all your money. You only pay Income Tax at the rate that applies to your income bracket. For example, if you make £60,000 a year, this is how much Income Tax you’ll pay
Pension scheme contributions are amounts taken from your pay each pay period toward your workplace pension scheme. This can be a good idea as it helps prepare for your future and provides benefits like employer contributions and tax relief.
Some more terms you might see on your payslip.
Personal pension contributions are amounts from your pay towards a personal pension plan. This can be a good idea for those who want more control over their pension savings and investment choices.
National insurance contributions are deductions from your pay used to fund state benefits, such as the state pension. You and your employer each pay a portion of these contributions.
Amounts taken out of your pay if you have a student loan. This is a legal requirement, and the amount taken out will depend on your income and the amount you owe.
If you get any other benefits from work, like health insurance, a loan, a company car, etc., these will be listed on your payslip and can change your tax code.
Your payslip may reflect your financial year earnings. Financial years run from 6th April to 5th April.
It may also display Year to date contributions for tax, National Insurance, student loan, and pension payments.
Depending on the problem, you’ll need to talk to a different person.
If you have a problem with how much you’ve been paid, you should talk to your HR department.
If you think there is a problem with your tax code, National Insurance, or student loan repayments, you should contact HMRC.
As an employee in the UK, it is essential to understand your payslip and the different amounts, codes, and deductions that appear on it. Your payslip is a legal requirement and a crucial tool for keeping track of your personal finances.
By understanding your payslip, you can ensure that you receive the right amount of pay, know your taxable and tax-free pay, and take advantage of workplace pensions and state benefits.
Seek additional information from government website if needed.
