Reading your payslip: gross pay, net pay and deductions

Your payslip shows two figures that matter more than any other: your gross pay, which is what you earn before anything is taken off, and your net pay, which is what actually lands in your bank account. The gap between them is filled by deductions: Income Tax, National Insurance, pension contributions and, for many people, student loan repayments. Understanding that gap is the first step in knowing what you can really spend each month.

The difference is not trivial. Official statistics show that taxes take a significant share of household income, and for many people Income Tax is the single largest deduction from their wages. Yet research by the Money and Pensions Service found that three in four UK adults do not know their take-home pay when accepting a job¹. That gap between the salary in a job advert and the money in your account is exactly what a payslip explains.

Your payslip is not just a receipt. It shows your tax code, your gross pay, the Income Tax and National Insurance taken off, your net pay, and any workplace pension payments². Each of those figures tells you something different about how your pay is worked out, and each one is worth checking.

Gross pay and net pay: what each figure means

Gross pay is your pay before any deductions. HMRC's own guidance for people starting work puts it plainly: gross pay means "your gross pay (that means your pay before any tax has been taken)"². Net pay, often called take-home pay, is what is left after Income Tax, National Insurance and other deductions have been removed, and it is the amount actually paid into your account.

The gross figure is used as the starting point for many calculations beyond your payslip. Statutory Maternity Pay is worked out on "gross pay that is due to you before any deductions"⁶. National Minimum Wage pay is calculated on gross pay, before tax and National Insurance have been taken off⁷. Redundancy pay is based on your gross weekly rate of pay, the amount you earned each week before deductions⁸. Northern Ireland's social security legislation likewise defines earnings as gross earnings, including any remuneration or profit derived from employment⁹.

One figure sits slightly apart: pension contributions. For child maintenance purposes, for example, gross annual income is yearly income before Income Tax and National Insurance are taken off, but after occupational or personal pension scheme contributions¹⁰. So depending on what is being calculated, "gross" can mean slightly different things, and your payslip is the place to see which figure is being used.

A diagram of the journey from gross pay to the amount paid into your account.

Income Tax is the biggest deduction for most people

For most people in work, Income Tax is the largest single amount taken from their pay. HMRC collects it through Pay As You Earn (PAYE): your employer works out how much tax and National Insurance you owe, takes it from your wages before you are paid, and sends the money to HMRC². You never have to handle the tax yourself, but that also means the amounts taken depend entirely on your tax code being right.

The tax reaches a long way into household finances. Official statistics for the financial year ending 2024 show that 53.3% of people in the UK lived in households receiving more in benefits, cash and in kind, than they paid in taxes¹³. For the poorest fifth of households, wages and salaries fell by 5.1% in nominal terms and 10.1% in real terms over that period¹⁴. Tax is one half of that equation, and for most workers it is the deduction that moves most when income changes.

Income Tax applies to income above your Personal Allowance¹². What counts as taxable income is broad: money you earn from employment, profits from self-employed work including services sold through websites or apps, some state benefits, most pensions including the state pension, rental income, benefits from your job, income from a trust, and interest on savings above your savings allowance¹⁵. Some income is not taxed at all, including the first £1,000 of self-employment income, the first £1,000 of rental income, income from tax-exempt accounts such as ISAs, dividends within your dividend allowance, and premium bond or National Lottery wins¹⁵.

Personal Allowance: £12,570 before tax is taken

Everyone who pays tax in the UK gets a Personal Allowance: the amount of income you can receive each year before Income Tax is charged. For the 2026/27 tax year it is £12,570³. NS&I describes it as "the amount of income, including interest, that" you can receive tax-free, up to that limit¹⁶. The Scottish Government confirms the same UK-wide figure of £12,570¹⁷, and Welsh income tax statistics show the same £12,570 Personal Allowance for Welsh taxpayers¹⁸.

In practice, the allowance is delivered through your tax code. Your tax code is a mix of letters and numbers which your employer uses to work out your tax: it shows how much you can earn tax-free and how much to take from your wages above that². If your code is wrong, the wrong amount of tax comes out of every pay packet, which is why the code printed on your payslip is worth reading.

The allowance can also be shared between partners. Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner to reduce their tax¹⁹, provided your partner pays Income Tax at the basic rate, which usually means their income is between £12,571 and £50,270²⁰. In HMRC's worked example, a couple with incomes of £11,500 and £20,000 paid tax on £6,360 rather than £7,430, saving £214 as a couple²⁰. The transfer changes the receiving partner's take-home pay, not the payslip of the partner who gives up the allowance.

Income Tax bands and rates on your wages

Above the Personal Allowance, Income Tax is charged in bands, with a higher rate on each successive slice of income. For non-savings, non-dividend income such as wages, the main rates are 20%, 40% and 45%²¹. The bands for the tax year set out in the Budget 2025 rates and allowances document are:

These figures are for taxable income, that is, income above your Personal Allowance. So a basic rate taxpayer pays 20% only on the part of their income between £12,571 and £50,270³. The bands do not mean that crossing into the higher rate makes your whole income taxed at 40%, only the portion above the threshold.

Not all income is taxed at these rates. Dividend income has its own rates, and the dividend ordinary rate is 8.75% for the 2025 to 2026 tax year, rising to 10.75% for 2026 to 2027⁴. Tax on savings income will increase by 2 percentage points across all bands²². If you have savings interest or dividends alongside your wages, your payslip only shows the tax on your employment income, so the full picture may involve more than one page of your tax account.

Scotland and Wales: why your rates may differ

Where you live changes the Income Tax rates applied to your wages. Scottish Income Tax is set by the Scottish Government and has its own bands and rates. For 2026 to 2027, the Scottish higher rate is 42% on taxable income of £43,663 to £75,000²³. The Scottish Government publishes the full set of Scottish rates and bands each year, and they differ from the rates in England, Wales and Northern Ireland¹⁷. The UK Personal Allowance of £12,570 still applies¹⁷.

Wales has the power to set Welsh rates of Income Tax, though in practice the rates paid by Welsh taxpayers have matched the English and Northern Irish rates, with the Welsh Government confirming the £12,570 Personal Allowance in its outturn statistics¹⁸. Your payslip may not spell out which nation's rates apply, but your tax code reflects where HMRC believes you live, so it is worth checking that too if you have moved.

If you think you may be paying the wrong rates for where you live, HMRC can check your record. Free guidance is also available for each nation: see money help in Scotland, money help in Wales and money help in Northern Ireland, and the wider guide to money in Scotland, Wales and Northern Ireland.

Pension contributions: before tax or after tax

Workplace pension contributions appear on your payslip, and where they sit in the calculation changes how much tax you pay. Most workplace pensions use a net pay arrangement. Under this arrangement, your employer takes your pension contribution and the government's contribution as tax relief from your pay before deducting tax, and you pay tax on what is left¹¹. The Pensions Regulator describes the same principle from the employer's side: with net pay arrangements, tax is calculated on the pay that is left after the employee has paid into the pension²⁴.

The practical effect is that your pension contribution reduces the income that is taxed, so the cost to your take-home pay is less than the amount going into your pension. This is one of the most common sources of confusion on a payslip: the pension figure shown is the gross contribution, including the government's top-up, not the amount your pay has fallen by.

Not every deduction works this way, and some calculations treat pension contributions differently again. For child maintenance, a paying parent's payments into a private pension scheme usually reduce the income figure used, by the full amount paid including the value of any tax relief¹⁰. So the same £100 pension payment can reduce your taxable pay by one amount and a maintenance assessment by another.

How tax relief tops up what you pay into a pension

Tax relief means the government adds to your pension savings. nidirect's worked example follows a basic rate taxpayer called Tom who pays £80 into his workplace pension. Because he pays Income Tax at 20%, the government adds £20, so "the pension contribution figure he sees on his monthly payslip is £100"¹¹. His take-home pay falls by £80, not £100, because the contribution comes out before tax under the net pay arrangement.

For higher rate taxpayers the position is different. If you pay Income Tax at a rate higher than 20%, you need to claim the extra tax relief yourself²⁵, either by contacting HMRC or through a Self Assessment tax return. The automatic top-up stops at the basic rate, so higher and additional rate taxpayers who do not claim are paying more tax than they need to. This does not change the figures on your payslip, but it does change your overall tax bill.

Pension tax relief is one of the largest reliefs in the UK tax system. Official statistics on tax expenditures cover net relief on pension contributions, relief on investment returns, and tax paid in retirement, net of the tax-free 25% lump sum²⁶. Each year you receive tax relief on your pension contributions of up to 100% of your UK earnings, your salary and other earned income²⁷.

Pension limits: annual allowance of £60,000

Tax relief on pension saving has a ceiling. The Annual Allowance is £60,000⁴, and it covers contributions from both you and your employer: for most people, combined contributions must be less than £60,000²⁸. The same £60,000 limit appears in the Autumn Budget 2024 rates and allowances document²¹, so the figure has been stable across both recent fiscal events.

Two further points matter. First, the annual allowance limits the tax relief, not the saving itself: you can contribute as much as you like into any number of pension schemes, personal or workplace or both, each year, and there is no upper limit to the total amount of pension saving you can build up²⁷. Second, going over the allowance has consequences: you pay tax on any employer contributions that go above the Annual Allowance²⁹.

The allowance is a limit to be aware of rather than one most people hit. For someone starting out, the more relevant question is how much to save, which the guide to how much to pay into a pension covers, alongside the wider guide to pensions.

Salary sacrifice and the £2,000 cap from April 2029

Some employers run pension contributions through salary sacrifice. Salary sacrifice is when you agree to reduce your gross salary, or sacrifice a bonus, and in return your employer pays the same amount into your pension⁵. Because your salary is lower, the amount on your payslip changes shape as well as size.

A reform takes effect from April 2029. From that date, the amount of salary sacrifice pension contributions that is exempt from National Insurance contributions will be capped at £2,000 a year⁵. Contributions above the cap will attract both employer and employee National Insurance.

The government's impact assessment gives a sense of scale. An estimated 56% of employees currently making typical pension contributions through salary sacrifice will be unaffected by the threshold, meaning 44% of employees using salary sacrifice for pensions would be impacted³⁰. For those affected, the average additional employee National Insurance liability is estimated at £84 in the first year of impact, tax year 2029 to 2030³⁰. The measure will not change the impact of salary sacrifice on adjusted net income³⁰.

Checking your payslip and what to do if something looks wrong

A payslip is worth reading line by line, because every figure on it is either something you are entitled to or something being taken from you. The items to check are your tax code, gross pay, the Income Tax and National Insurance taken off, your net pay, and any workplace pension payments². Your tax code is a mix of letters and numbers which your employer uses to work out your tax², and it is the figure most likely to be wrong after a change of job or circumstances.

If something looks wrong, the route runs through HMRC rather than your employer, because HMRC sets the code. If you have a new job or more than one job, tell HMRC so it can adjust your code³¹. If you were paying the wrong amount of tax, your next payslip should show your new tax code and any adjustments³¹. If you have overpaid, you can check and claim a refund online on GOV.UK, on the HMRC app, or by asking HMRC to send you a cheque³². HMRC may also reduce the tax collected from your future wages³². For Self Assessment taxpayers, a reform in the pipeline will let taxpayers who know their tax will be significantly higher or lower than forecast make their forecasts and in-year payments more accurate by contacting HMRC using an online form³³.

Payslip fraud is a separate risk, and it targets particular groups: agency workers, temporary workers, contractors, and people working through an umbrella or payroll company³⁴. HMRC lists warning signs to watch for:

• being told you will get your full pay without tax taken off, described as gross pay³⁵
• losing access to your payslips or the payslip portal³⁵
• being asked to set up your own company, a personal service company³⁵
• being suddenly moved to a different umbrella or payroll company³⁵
• struggling to get benefits such as voucher or pension schemes³⁵

HMRC also advises checking that the tax and National Insurance shown on your payslip or deduction statement has been paid correctly if you are in one of these working arrangements³⁴. The wider guide to scams and fraud covers how to report a problem.

Why take-home pay is the figure to budget from

A budget built on gross pay will not survive contact with the bank account. Only net pay arrives, so net pay is the figure to plan spending, bills and savings around. The Money and Pensions Service found that three in four UK adults do not know their take-home pay when accepting a job¹, and its salary calculator exists to close that gap: it shows what you will typically earn after tax, National Insurance and other deductions, and compares two salaries side by side¹.

The consequences of budgeting from the wrong figure are easy to picture. In one case study from the Financial Ombudsman Service, a consumer's take-home pay was around £1,200 each month, out of which came around £450 rent, £200 in utility bills and food, plus £200 each month for a car finance agreement³⁶. That is a budget with almost no slack, and it only works if the £1,200, not the larger gross figure, is what the plan assumes.

Once you know your net pay, the next steps are covered elsewhere on this site: how to make a budget, the 50/30/20 rule for splitting your income, and budgeting when your income varies each month if your pay is not the same every month. If money is already tight, free money guidance from MoneyHelper and Citizens Advice costs nothing, and the guide to spending more than you earn sets out the options.