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Do you understand those letters and numbers on your payslip? Apart from the amount taken out of your pay for income tax and National Insurance (and hopefully some put aside for your pension), the other numbers can seem baffling. Here’s an easy guide on how to read your payslip.
There are lots of confusing numbers on your payslip, including:
Every pay statement is supposed to have:
Your employer might also include other elements on your payslip such as:
Your tax code is usually made up of several numbers and a letter, such as 1250L. This is an important part of learning how to read your payslip.
What it means is the amount of money you’re allowed to earn before you get taxed on it. If your tax code is a number followed by a letter, then multiply the numbers by 10 and you’ll get the total amount of income you can earn in a year before paying tax.
So, if your tax code is ‘1250L’, then the amount you can earn before you pay any tax is £12,500. If you earn £15,000, you won’t pay tax on the first £12,500 – the standard Personal Allowance (and most common tax code). You’ll only pay 20% on the remaining £2,500. The letter is connected to your personal circumstances, such as your age and whether you have two jobs.
A lot of people are on a 1250L code, but there are other common ones too. If you start working a second job or your pay changes suddenly, tell the tax office so that you make sure your new code is right.
Taxpayers on the wrong tax code can be overcharged, so check that your coding notice makes sense and you have been put in the right category. You could find that you’re owed some money from being on the wrong code for a while. If you’re undercharged for tax, make sure you raise this issue because at some point the tax office will notice and demand payment of tax you owe!
To calculate your code, HMRC also deducts the value of your benefits from your personal allowance. Make sure they’ve included any taxable benefits you get at work like a company car or private medical insurance.
If they haven’t included those now, then you could find yourself slapped with an extra tax bill when they suddenly realise that you owe them. Yuk!
Tax codes are an important part of understanding how to read your payslip.
If you are in dispute with HMRC and you believe you are right then keep persisting. Generally, if you demonstrate that you are not willing to back down and you will argue your case to the end they will concede. So, if you truly believe you are right, stick to your guns!
You can find out more about understanding your payslip in a new money guide from Learndirect called ‘Worth Learning’ which Jasmine has helped to write. Download it here for free.
You do not have a right to receive a pay slip if you are:
Now you should know just how to read your payslip!