Most people glance at the total on their payslip and move on. Fair enough, but the gap between what you're paid and what lands in your account is made up of specific, predictable things, not a mysterious deduction.
Here's what actually happens to your money before it reaches you: Income Tax, National Insurance, and often a pension contribution, each calculated by a different rule, each worth understanding on its own.
The three deductions, actually explained
Income Tax. Charged on your earnings above a tax-free allowance, in bands: you pay a higher rate only on the portion of income above each threshold, not on everything you earn. Most people pay this through PAYE, meaning it's deducted automatically before you're paid.
National Insurance. A separate deduction that funds state benefits and the State Pension. It's calculated differently from Income Tax, with its own thresholds, which is why your Income Tax and National Insurance figures on a payslip are rarely the same, even though both come out of the same pay.
Pension contributions. If you're in a workplace pension, this comes out too, but unlike tax and National Insurance, this money isn't gone, it's yours, just held somewhere else until retirement.
Tax codes, actually decoded
A tax code looks cryptic but is doing something simple: telling your employer how much of your income is tax-free before Income Tax starts being deducted. The most common code represents the standard tax-free allowance most people get.
Letters in the code usually indicate something specific about your circumstances, for example, having more than one income, or previously under- or over-paying tax. An unusual code isn't inherently a problem, but it's worth checking that it matches your actual situation, since an incorrect code can mean paying the wrong amount of tax without realising.
Common payslip myths, actually addressed
"If my code looks wrong, there's nothing I can do."
Tax codes can be checked and corrected. If your circumstances have changed, a new job, a second income, a company benefit, it's worth confirming the code reflects that.
"Overtime and bonuses are taxed at a punishing extra rate."
They're taxed at your normal rate for that portion of income: it can look like a bigger chunk disappears because that pay period pushed more of your income into a higher band, not because bonuses are special.
"Payslips are all identical, so mine doesn't need checking."
Format varies by employer, but the components, gross pay, deductions, net pay, should always be there and should always add up. It's worth checking at least once that they do.
A simple way to actually read your payslip
- Find your gross pay: the full amount before anything is taken off.
- Check your tax code matches your current circumstances.
- Separate the deductions: Income Tax, National Insurance, pension, so you know what each one is actually for.
- Confirm the maths: gross pay minus deductions should equal your net pay, the amount that actually lands in your account.
Want the actual numbers? Try our Salary Calculator — see what actually lands in your account after tax, National Insurance, pension and student loan.
This explainer covers how payslips and tax deductions work in general. It isn't personalised financial or tax advice — for guidance specific to your situation, a regulated adviser or accountant can help.