Mar 04

How to read your payslip

Reading Time: 4 mins

Do you understand those letters and numbers on your payslip? Apart from the appalling amount taken out of your pay for nasty income tax and National Insurance (and hopefully a bit syphoned-off for your pension), the other numbers can seem baffling. Here’s an easy guide on how to read your payslip.

What your payslip should include

There are lots of confusing numbers on your payslip including your gross salary (the actual amount you were quoted when you joined) plus the amount you need to pay in tax for this month and the amount taken out for National Insurance (another tax really although it’s not called that).

Every pay statement is supposed to have:

  • the amount of your wages before any tax or anything else is taken out (gross wages)
  • the individual amount of any fixed deductions (such as trade union subscriptions) or the total amount of these deductions if you are given a ‘standing statement of fixed deductions’
  • the individual amount of any variable deductions (like your tax or pension contributions)
  • the net amount of your wages (this is the total amount you get after all the deductions)
  • the amount and method for any part-payment of wage (such as separate figures of a cash payment and the balance credited to a bank account)

Your employer might also include other elements on your payslip such as:

  • your National Insurance number
  • your tax codes
  • your pay rate (either annual or hourly)
  • any additional payments like overtime, tips or bonuses, which might be shown separately

How to understand your tax code

Your tax code is usually made up of several numbers and a letter, such as 647L.

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 number by 10 and you’ll get the total amount of income you can earn in a year before paying tax.

So say that it is ‘647L’ then the amount you can earn before you pay any tax is £6,470. If you earn £10,000, you won’t pay tax on £6,470 of it but you will have to pay 20% on £3,530. The letter’s connected to your personal circumstances, such as your age and whether you have two jobs.

A lot of people are on a 647L 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.  For example, if you were suddenly moved to a 117L code from a 647L code, this would mean that your untaxed allowance has gone down. For a 117L code, you could earn only £1,170 before paying tax.

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. Even if you’re undercharged for tax that could be bad because at some point the tax office will notice and demand back payment of tax!

Here is what the various letters mean:

L: You get the basic personal allowance.
P: You are 65 to 74 and get the full personal allowance.
Y: You are 75 or over and get the full personal allowance.
V: You are 65 to 74, eligible for the full personal allowance and the married couple’s allowance and just pay basic rate tax.
K: You get no tax-free pay or you owe money to HMRC.
T: This is an emergency tax code: HMRC needs further information, so cannot allocate another code.
BR: This is Basic Rate which you should only have if you have a second job. There’s no personal allowance on this code.
DO: This is where the whole amount is charged at 40%. This is most commonly used for a second job where you are already into the 40% bracket with your first job.
NT: There is no tax is taken from your income or pension.

To calculate your code, HMRC also deducts the value of your benefits from your personal allowance. So 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 in a year or so when they suddenly realise that you owe them. Yuk!

What to do if your tax code is wrong

If you are in dispute with HMRC and you believe you are right then persist, persist and persist. 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!

We’ve got a step-by-step guide here to checking your tax code and making sure you get it changed if it’s wrong.

Help from Learndirect

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.

Did you know…

You do not have a right to receive a pay slip if you are:

  • not an employee – i.e. you’re a contractor or freelancer
  • a member of the police service (although we can’t work out why!)
  • a merchant seaman, master or crew member working in share fishing and paid solely by a share in the profits or gross earnings of a fishing vessel

…well you do now!

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If you earn different amounts each month they ur NIC will change accordingly


all my payslips have NIC error fallowed by different amounts every month? is that normal?

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