Understanding Your Payslip Deductions: Tax, NI, and More Explained
Every employee in the UK should receive a payslip on or before each payday. But understanding what all the deductions on it actually mean is less straightforward. This guide explains every deduction you’re likely to see — what it is, how it’s calculated, and what to do if something looks wrong.
Income tax (PAYE)
Income tax is collected by your employer on behalf of HMRC through the Pay As You Earn (PAYE) system. The amount deducted depends on your earnings and your tax code.
In 2026/27, the rates are:
| Earnings | Rate |
|---|---|
| Up to £12,570 (personal allowance) | 0% |
| £12,571 – £50,270 | 20% |
| £50,271 – £125,140 | 40% |
| Over £125,140 | 45% |
Your tax code tells your employer how much of your income is tax-free. The standard code for most employees is 1257L, giving a personal allowance of £12,570. If your code is different, your allowance has been adjusted — check with HMRC if you don’t recognise it.
PAYE is calculated cumulatively across the tax year, so your monthly tax deduction may vary if your earnings change month to month.
National Insurance (NI)
National Insurance contributions fund your State Pension, NHS, and benefits like Statutory Sick Pay and Maternity Pay. In 2026/27:
- You pay 8% on earnings between £12,570 and £50,270
- You pay 2% on earnings above £50,270
- No NI is payable on earnings below £12,570
Your employer also pays NI on your earnings — this appears on some payslips as “ER NIC” or “Employer NI”. This does not come off your pay — it’s a cost borne by your employer.
Student loan repayments
If you’re on a student loan repayment plan, deductions are taken automatically once your earnings exceed your plan’s threshold:
| Plan | Threshold 2026/27 | Rate |
|---|---|---|
| Plan 1 | £26,900 | 9% |
| Plan 2 | £29,385 | 9% |
| Plan 5 (Sept 2023 starters) | £25,000 | 9% |
| Plan 4 (Scotland) | £31,395 | 9% |
| Postgraduate | £21,000 | 6% |
Repayments are calculated on earnings above the threshold only, not your full salary. If you’re unsure which plan you’re on, check your Student Loans Company account.
Pension contributions
If you’re automatically enrolled in a workplace pension, your contribution appears as Pension EE (employee contribution) on your payslip. Under auto-enrolment the minimum employee contribution is 5% of qualifying earnings.
Your employer’s contribution appears separately as Pension ER. This does not reduce your pay — it’s an additional payment made by your employer into your pension pot.
Many employers use salary sacrifice for pensions, where your contribution is deducted before tax is calculated. This reduces your taxable pay and saves you income tax and NI — so the real cost to your take-home is less than the headline contribution percentage.
Other deductions you might see
| Deduction | What it is |
|---|---|
| Healthcare / PMI | Your contribution to private medical insurance provided by your employer |
| Cycle to Work | Salary sacrifice for a bicycle purchase — saves income tax and NI |
| AEO | Attachment of Earnings Order — court-ordered deduction for debt or child maintenance |
| CSA / CMS | Child maintenance deductions administered through payroll |
| Union fees | Trade union membership subscriptions deducted directly from pay |
How to check your deductions are correct
Use the free OS Payroll salary calculator to verify your income tax and National Insurance. Enter your gross salary and tax code, and compare the results against your payslip. If there’s a significant unexplained difference, raise it with your payroll department before the next pay run.
Frequently asked questions
Why is my income tax different each month?
PAYE is calculated cumulatively across the tax year. If your earnings vary — due to a bonus, overtime, or a mid-year pay rise — your monthly tax will adjust to keep your annual total on track. A higher-earning month will result in more tax that month.
Why is my NI showing as zero?
Employee NI is only charged on earnings above £12,570 per year (£1,048 per month). If your earnings for that period fall below this threshold — for example due to part-time hours or unpaid leave — no NI is deducted.
What is the difference between EE and ER pension on my payslip?
EE (employee) pension is your contribution — it reduces your net pay. ER (employer) pension is your employer’s contribution — it does not come off your pay and appears for information only.
What should I do if a deduction looks wrong?
Contact your payroll department as soon as possible, ideally before the next pay run. Keep copies of your payslips as evidence. If the issue relates to your tax code, also contact HMRC on 0300 200 3300.
Is salary sacrifice shown on my payslip?
Yes — salary sacrifice deductions (such as pension or cycle-to-work) appear as a separate deduction line before tax is calculated. Because they reduce your gross pay for tax purposes, your taxable pay will be lower than your headline salary.
This post is for general information only and does not constitute financial or tax advice.