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How to read your payslip

Jasmine Birtles 4th Mar 2020 2 Comments

Reading Time: 4 minutes

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.

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 were hired)
  • The amount you need to pay in tax for this month
  • The amount taken out for National Insurance

Every pay statement is supposed to have:

  • Your wage before any taxes are taken out (gross wage)
  • 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:

  • National Insurance Number
  • Tax codes
  • 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 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!

Here is what the various letters mean:

L: You get the basic personal allowance.
P: You are aged 65 to 74 and get the full personal allowance.
Y: You are aged 75 or over and get the full personal allowance.
V: You are aged 65 to 74, eligible for the full personal allowance and the married couple’s allowance, and 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. 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.

What to do if your tax code is wrong

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!

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
  • 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

Now you should know just how to read your payslip!

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9 years ago

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

9 years ago

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

Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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