What Is PAYE on a Payslip and How Does It Affect Your Take-Home Pay?

PAYE on your payslip relates to the Pay As You Earn system used to collect Income Tax from your wages before you receive them.

Your employer calculates the amount using information such as your taxable pay and tax code, deducts it through payroll and sends the relevant amount to HM Revenue and Customs (HMRC).

However, PAYE is often confused with National Insurance, your tax code and other payroll deductions.

Understanding what each figure means can help you work out why your take-home pay has changed and whether the tax being deducted looks correct.

For the 2026/27 tax year, the standard Personal Allowance is £12,570 across the UK, although Income Tax bands differ in Scotland.

What Does PAYE on Your Payslip Actually Mean?

If your payslip shows PAYE, PAYE Tax or simply Tax, it normally refers to Income Tax that your employer has deducted from your wages under the Pay As You Earn system.

PAYE itself is the system used by employers to calculate and collect tax through payroll. National Insurance is also processed through payroll, but it will normally appear as a separate deduction on your payslip.

For example, a simple monthly payslip might show:

The exact deductions depend on your salary, tax code, pension arrangements, National Insurance category and any other deductions that apply.

If you are trying to work backwards from net wages, looking at examples such as a £1,600 monthly take-home salary can also help show how Income Tax and National Insurance reduce gross earnings.

Is PAYE the Same as Income Tax on Your Payslip?

PAYE and Income Tax are closely connected, but they are not technically the same thing.

Income Tax is the tax you owe on taxable income. PAYE is the system employers and pension providers use to deduct that Income Tax before paying you.

This distinction matters when reading your payslip because PAYE should not automatically be interpreted as one combined charge covering Income Tax and National Insurance. Your payslip will normally identify tax and National Insurance separately.

Your employer uses the tax code supplied by HMRC to determine how much Income Tax should be taken from your pay.

HMRC states that an employer uses an employee’s tax code to calculate the Income Tax deduction.

How Does PAYE Work When You Get Paid?

Your employer runs PAYE as part of payroll each time you are paid. The process happens before your wages reach your bank account.

Your employer generally:

1. Calculates your gross earnings for the pay period
2. Applies your current tax code
3. Calculates the Income Tax due
4. Calculates other payroll deductions such as National Insurance, pension contributions and student loan repayments
5. Pays you the remaining net amount

The employer then reports payroll information to HMRC.

This means most employees do not have to manually calculate and pay Income Tax on their normal salary each month.

Small employers that manage employee wages internally still need to follow payroll requirements when they run payroll themselves.

How Is PAYE Tax Calculated on Your Payslip?

The amount shown as PAYE tax can vary between employees even when their gross salaries are similar. The main factors are your taxable pay, tax code and the Income Tax bands that apply to you.

Taxable Pay

Your gross salary is your earnings before deductions, but not every payroll arrangement produces the same taxable-pay figure.

Salary sacrifice arrangements, certain pension arrangements and taxable benefits can affect the figures used when payroll is calculated.

For the 2026/27 tax year, the standard Personal Allowance is £12,570. Someone receiving the full allowance can therefore generally receive £12,570 of taxable income before Income Tax becomes payable, although individual circumstances can reduce or change the allowance.

Understanding when you start paying Income Tax can therefore make the PAYE figure on a payslip easier to interpret.

Tax Code

Your tax code tells your employer how much tax-free income to take into account and how your pay should be taxed.

For many employees receiving the standard Personal Allowance, 1257L is the familiar tax code.

The numbers generally represent the tax-free amount after multiplying them by 10, while the letter gives HMRC information about how your allowance should be treated.

A different tax code can significantly change the PAYE deduction even when your salary remains unchanged.

Income Tax Band

After allowances have been taken into account, taxable earnings are charged using the relevant Income Tax bands.

For England and Northern Ireland in 2026/27, HMRC lists a 20% basic rate, 40% higher rate and 45% additional rate.

Wales currently has corresponding rates, while Scotland operates different Income Tax bands and rates.

Importantly, moving into a higher tax band does not mean your entire salary suddenly becomes taxable at that higher percentage. The relevant rate applies to the portion of income within that band.

What Do Common PAYE Tax Codes on Your Payslip Mean?

Looking at your tax code is one of the quickest ways to understand why a particular PAYE deduction has appeared.

HMRC also uses prefixes such as S for Scottish Income Tax and C for Welsh Income Tax.

An unfamiliar code does not automatically mean payroll has made an error. For example, tax code 0T W1 can arise when an employer does not yet have enough information to apply the normal allowance.

How Can You Check if the PAYE Tax on Your Payslip Is Correct?

Start by comparing the tax code on your payslip with the tax code HMRC currently holds for you.

HMRC recommends using the tax code, gross pay and amount of tax paid from your payslip when checking your deduction.

If your payslip tax code differs from the code shown by HMRC, you should raise the difference with your employer. HMRC also provides an online service for estimating the tax due for the current year.

A practical check should include:

• Check Your Tax Code: Make sure the code on the payslip matches HMRC’s current record
• Check Your Gross Pay: Confirm that salary, overtime and other payments have been recorded correctly
• Review Your Tax Deduction: Compare the PAYE tax with what you would expect from your code and earnings
• Check Recent Changes: Consider a new job, second job, company benefit or tax-code adjustment

HMRC shows how employees can compare their tax code, gross pay and Income Tax deduction to check whether the tax on a payslip is correct.

Why Has Your PAYE Tax Increased or Decreased?

A sudden change in PAYE does not necessarily mean your employer has made a mistake. Payroll deductions can change from one month to another for several reasons.

Common causes include:

• Higher Earnings: Overtime, commission or a bonus can increase taxable pay for the period
• Tax Code Changes: HMRC may issue a different code because your circumstances have changed
• New Employment: Starting a job without complete previous pay information can result in an emergency code
• Previous Underpayments: HMRC can adjust a tax code to collect tax that was previously underpaid

Cash bonuses count as earnings, so employers generally add them to other earnings and deduct PAYE tax and Class 1 National Insurance through payroll.

If your tax code ends in W1, M1 or X, it is an emergency code. Instead of looking at your total income for the year, tax is calculated using the earnings for that particular week or month.

What Do PAYE Year-To-Date Figures Mean on a Payslip?

Many payslips include a year-to-date, YTD or this year section.

These figures can show the total amount you have earned and the total Income Tax deducted since the beginning of the tax year on 6 April.

For example, your October payslip might contain both:

The monthly column tells you what happened during that particular payroll period. The year-to-date column gives you a running total.

These figures are especially useful when checking cumulative tax calculations or comparing your payslip with information held by HMRC.

However, year-to-date totals are additional information rather than one of the basic items every payslip is legally required to display.

What Information Must Be Shown on a UK Payslip?

UK employers must provide employees and workers with a payslip on or before payday.

A payslip must show your earnings before deductions, earnings after deductions and deductions that can change between pay periods, including Income Tax and National Insurance.

Where pay varies according to the amount of time worked, the number of hours must also be shown.

Payslips may contain additional information such as:

• Tax Code: The code used to calculate your Income Tax
• National Insurance Number: Your personal NI identifier
• Payroll Number: An internal employee reference used by the employer
• Year-To-Date Totals: Running totals for earnings and deductions

These additional items are commonly useful, but they should not all be described as legally mandatory payslip fields.

GOV.UK confirms the information employers must show on a payslip, including earnings before and after deductions and variable deductions such as tax and National Insurance.

Where Can You Find Your PAYE Reference Number?

The employer PAYE reference identifies your employer’s PAYE scheme. It should not be confused with your individual tax code, payroll number or National Insurance number.

Some employers include their PAYE reference on payslips, but there is no legal requirement for them to do so. If it does not appear on your payslip, you may be able to find it on your P45 or P60.

If you still cannot locate it, your employer’s payroll or HR department should normally be able to provide the appropriate reference.

What Happens if You Have Paid Too Much PAYE Tax?

PAYE overpayments can happen when the wrong tax code is used, your circumstances change or HMRC does not initially have complete information about your income.

If HMRC changes your tax code during the tax year and has enough information to calculate the correction, your employer or pension provider may refund the difference through your wages when the new code is applied.

After the tax year ends, HMRC can also check whether the correct amount was collected. If you have paid too much or too little, you may receive a P800 tax calculation or Simple Assessment explaining the position.

Remember that Income Tax and National Insurance are separate deductions. If the unusual figure is your NI contribution rather than PAYE Income Tax, the process for checking whether you have paid too much National Insurance is different.

What Happens if You Have Paid Too Little PAYE Tax?

If too little Income Tax has been collected, HMRC may change your tax code so that additional tax is deducted from future salary or pension payments.

For qualifying underpayments of less than £3,000, HMRC says the amount can usually be collected through a changed tax code, with deductions generally spread over 12 months from the beginning of the following tax year.

Other arrangements may apply where the amount cannot be collected through PAYE.

Do not ignore a tax-code change simply because your employer has not changed your salary. A code adjustment alone can reduce your take-home pay.

If you believe HMRC’s calculation is based on incorrect income or employment information, check your Personal Tax Account or contact HMRC to correct the underlying details.

How Does PAYE Work if You Have More Than One Job?

If you have two or more jobs, each employment normally has its own tax code.

HMRC may apply your Personal Allowance to one employment while taxing another job using a code such as BR, D0 or D1. Which codes are appropriate depends on your combined income and circumstances.

For example, someone could have 1257L on their main employment and BR on a second job. That does not necessarily mean the second employer has made an error.

When starting an additional job, you may need to complete a starter checklist because you will not receive a P45 from an employer you are continuing to work for.

Correctly telling the new employer that you already have another job helps them apply the appropriate payroll information.

Does PAYE Apply to Bonuses, Overtime and Commission?

In many cases, yes. Extra cash earnings from employment can increase the amount processed through payroll.

Cash bonuses are treated as earnings and are generally subject to PAYE Income Tax and Class 1 National Insurance.

Overtime and commission can also increase your gross pay for a particular period. This may make the Income Tax deduction noticeably higher than on your normal payslip.

However, receiving a large bonus does not automatically mean all of your annual income is taxed at a higher rate. PAYE applies the relevant tax rules to taxable earnings and the bands that apply to your circumstances.

What Happens to PAYE When You Start or Leave a Job?

Changing jobs is one of the most common times for PAYE deductions to look different.

When you leave employment, your previous employer should provide a P45 showing your leaving date, pay and tax from the beginning of the tax year to the date you left, and your tax code. Your new employer can use this information to calculate your tax correctly.

If your new employer does not have your previous pay and tax information, an emergency tax code may temporarily be used.

HMRC says this commonly happens when a new employer does not have the necessary information from a P45.

Providing accurate starter information can therefore reduce the risk of paying too much or too little tax during the first few pay periods.

How Do P45 and P60 Forms Relate to PAYE?

Your payslip gives you information about individual pay periods, while your P45 and P60 provide important PAYE records covering wider periods.

A P45 is issued when you leave a job. It records pay and Income Tax from 6 April to the date you leave.

A P60 summarises the tax paid on your salary for the tax year. If you are still employed on 5 April, your employer must provide your P60 by 31 May.

If you have several jobs, you receive a separate P60 from each employer where applicable.

These documents are worth keeping because they can help when checking tax, claiming an overpayment or proving your income.

What Is the Difference Between PAYE and Self Assessment?

PAYE normally collects Income Tax automatically from employment or pension income before the money reaches you.

Self Assessment works differently. Where you are required to complete a tax return, you report relevant income to HMRC and the resulting tax position is calculated through the Self Assessment system.

A person can have both systems operating at the same time. For example, someone who is employed and self-employed at the same time may have Income Tax deducted from their salary through PAYE while separately reporting taxable business income through Self Assessment.

The presence of PAYE on a payslip therefore does not automatically mean every source of income you have has been fully dealt with for tax purposes.

Frequently Asked Questions

What Does PAYE Mean on My Payslip?

PAYE means Pay As You Earn. On a payslip, PAYE or PAYE Tax normally refers to Income Tax deducted from your wages by your employer and paid to HMRC.

Is PAYE Deducted From Every Payslip?

Not necessarily. Whether Income Tax is deducted depends on your taxable earnings, tax code, allowances and circumstances. You can therefore have a payslip with no PAYE Income Tax deduction.

Does PAYE Include National Insurance?

PAYE is operated through payroll alongside National Insurance, but Income Tax and employee National Insurance are separate deductions. They will normally be shown separately on your payslip.

Why Is My PAYE Tax Different This Month?

Your PAYE may change because of overtime, a bonus, a salary change, a new tax code, an emergency tax code or HMRC collecting an earlier underpayment.

What Does 1257L Mean on a Payslip?

1257L is commonly used where an employee is entitled to the standard Personal Allowance. For 2026/27, that allowance is £12,570, although your individual code can differ depending on your circumstances.

Can I Get a Refund if I Have Overpaid PAYE?

Yes. Depending on when the overpayment is identified, it may be corrected through payroll after HMRC changes your tax code or through a later HMRC tax calculation and refund process.

Who Should I Contact if My PAYE Tax Looks Wrong?

First compare the tax code on your payslip with HMRC’s current record. Speak to your employer if the wrong code or payroll figures have been used, or contact HMRC if the code itself does not reflect your circumstances.