The payslip. That thing we wait for each month with a mix of excitement and curiosity – it’s essentially the receipt for all our hard work. But despite how important it is, I often get asked things like:
✉️ “What does this bit mean?”
💷 “Why am I paying more tax this month?”
These questions usually come down to one thing: your tax code.
Most people are on 1257L, which has been the standard since the 2021/22 tax year. This is linked to what’s called your Personal Allowance – the first portion of your earnings that are tax-free. 1257L means that you are getting the standard PA of £12,570 for the year. Anything over that gets taxed, and National Insurance kicks in too.
💡 “But my tax code is different! Does that mean I’m not getting my full allowance?”
The answer is the accountant’s favourite trope – it depends. Some people are not entitled to a Personal Allowance. HMRC might also adjust your code based on your circumstances.
For example:
- You’ve got a second job;
- You’re also self-employed;
- You’ve underpaid tax in previous years, and they’re collecting it gradually through your payslip;
- You have other taxable income such as dividends;
A few common payslip pointers:
📌 Is your salary correct? It is vital to check that things like your gross salary and overtime have been entered correctly.
📌 Gross vs Net pay – your take-home (net pay) can look surprisingly different from your full salary (gross pay).
📌 Tax Codes – these are generally cumulative for the tax year unless it shows “M1” or “W1” on the end. M1/W1 indicate that the tax is being calculated based on your income for that month alone. You will often see this in the first month after you change jobs part way through a tax year.
📌 NI contributions – not the same as tax. These go toward things like state pension and the NHS. Unlike tax codes, NI is calculated based on the individual income in the month if you are a “regular” employee.
📌Directors – NI can be calculated on either a pro-rata basis (similar to regular employees), but more often they are calculated on an annual basis (like cumulative tax codes). The annual basis means that directors may pay no NI at the start of the tax year, as it doesn’t kick in until they hit the annual NI threshold.
📌 Student loan repayments – triggered once you pass the earnings threshold. The threshold can change each year so even if your salary doesn’t change, the repayment amounts can.
📌Pension deductions – often pre-tax, and worth understanding if it’s salary sacrifice. Generally, if your gross earnings are more than your taxable earnings by the pension amount, then you will be in a salary sacrifice scheme.
📌Benefits in kind – things like company cars and private healthcare are normally taxed and will affect your tax code. They may also appear itemised on your payslip if your employer is Payrolling Benefits (instead of doing P11ds after the fact). Payrolling Benefits was due to be mandatory from April 2026, but the government have just announced that this has been pushed back to April 2027.
Your payslip can tell you a lot – once you know what you’re looking at. If you’ve ever looked at yours and thought, “…huh?”, you’re definitely not alone.
Feel free to drop a comment or message if you’ve got a line on your payslip that’s never quite made sense – we are always happy to help where we can.
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