Most people glance at one number on their payslip — what landed in the bank — and ignore the rest. Fair enough; it's a wall of codes and deductions. But five minutes understanding it is genuinely worth having, because payslips carry mistakes more often than you'd think, and a wrong tax code can quietly cost you hundreds of pounds a month that you're entitled to get back. This is every line, decoded, with the current 2026-27 figures.
Gross vs net — the two numbers that frame everything
Gross pay is what you earn before anything's taken off. Net pay (or ‘take-home’) is what actually reaches your account. The gap between them is income tax, National Insurance, pension contributions, and sometimes student loan or other deductions. Both numbers matter for different jobs: gross is what you negotiate on and what lenders assess for a mortgage; net is what your budget has to be built on. Mixing them up is how people commit to rent they can't afford.
Your tax code — the line most worth checking
Your tax code tells your employer how much you can earn tax-free before income tax kicks in. For most people in 2026-27 it's 1257L — the ‘1257’ is the £12,570 personal allowance with the last digit dropped, and the L just means the standard allowance applies. If yours looks different, there's a reason — sometimes a good one (a company benefit, a second job), sometimes an error that's costing you money every payday.
Codes that can cost you.
- W1, M1 or X on the end — ‘emergency tax’, common after starting a new job. Each payday is taxed in isolation, ignoring the year so far, so you can overpay until it's fixed.
- BR — everything taxed at 20% with no tax-free allowance. Correct for many second jobs; expensive if it's wrongly on your main one.
- 0T — no allowance at all, often because your employer doesn't have the details they need from you.
- K codes — you owe tax on top (untaxed income or benefits), so extra tax is collected through your pay.
- M or N — Marriage Allowance: one partner has transferred £1,260 of their personal allowance to the other, worth up to £252 a year. M means you're receiving it, N means you've given it.
Check your code at GOV.UK — your personal tax account shows how it was worked out. If it looks wrong, contact HMRC: a corrected code is one of the few money problems a phone call can fix, often with the overpayment refunded automatically through a later payslip.
Income tax — how the bands actually work
You're not taxed at one flat rate; tax steps up in slices. For 2026-27 in England, Wales and Northern Ireland (Scotland sets its own bands and rates):
- First £12,570 — 0% (your personal allowance)
- £12,571 to £50,270 — 20% (basic rate)
- £50,271 to £125,140 — 40% (higher rate)
- Over £125,140 — 45% (additional rate)
The crucial word is slices. Only the money inside each band is taxed at that band's rate. A pay rise that nudges you over £50,270 does not tax your whole salary at 40% — just the pounds above the line. Turning down a rise ‘because it'll push me into the next bracket’ is always a mistake; you keep most of every extra pound. (Two genuine wrinkles at higher incomes: above £100,000 the personal allowance shrinks by £1 for every £2 you earn, disappearing entirely at £125,140 — and a higher income can affect Child Benefit, which is worth understanding if that's you: see Child Benefit — are you missing out?)
National Insurance — the second tax nobody explains
National Insurance is deducted separately from income tax. For employees in 2026-27 it's 8% of earnings between £242 and £967 a week — roughly £12,570 to £50,270 a year — and 2% on everything above that. Unlike income tax it's calculated per pay period rather than annually, which is why a bonus month can look oddly taxed. It's not money into the void: your NI record builds your entitlement to the State Pension and some benefits, which is why gaps in it can matter later.
Pension — the deduction you actually want
If you're aged 22 or over and earning above the trigger, auto-enrolment means a workplace pension line should appear on your payslip. The legal minimum is 8% of a band of your earnings in total, of which your employer must pay at least 3%. That employer money — plus the tax relief on your own contribution — is the closest thing to a pay rise you can get by doing nothing, which is why opting out to boost take-home is nearly always an expensive mistake. Check the line is actually there, and that an employer contribution sits alongside yours; then see what your pension really needs to look like.
Student loan — check the plan letter
If you have a student loan, repayments come through payroll automatically once you earn above your plan's threshold — currently £29,385 for Plan 2 (most English graduates from 2012 to 2022), £25,000 for Plan 5, £26,900 for Plan 1, £33,795 for Plan 4, all at 9% of income above the threshold; postgraduate loans repay 6% above £21,000. The mistake worth catching: being put on the wrong plan. The plans' thresholds differ by thousands, so a wrong letter means wrong deductions every month. Your payslip or P60 shows the plan; check it against your loan paperwork.
Illustrative figures, 2026-27 rates, England, standard 1257L code, no student loan, and rounded to the pound. Real payslips vary with pension setup and benefits.
Income tax: £32,000 − £12,570 allowance = £19,430 taxable, all in the basic-rate band. £19,430 × 20% = £3,886 a year.
National Insurance: the same £19,430 sits between the NI thresholds. £19,430 × 8% = £1,554 a year.
Take-home: £32,000 − £3,886 − £1,554 = £26,560 a year, about £2,213 a month.
Now add a 5% pension (£1,600), taken before tax in a ‘net pay’ scheme: taxable pay drops to £30,400 − £12,570 = £17,830, so tax falls to £3,566 — £320 less. The £1,600 going into your pension only costs about £1,280 of take-home, and if your employer adds 3% of salary, another £960 lands in the pot on top. That's the arithmetic behind ‘don't opt out’.
1257LThe standard 2026-27 tax code. If yours differs and you don't know why, that's a five-minute check that can be worth hundreds of pounds.
The five-minute annual check
Once a year — a new job, a pay rise or every April are natural moments — run through this list against your latest payslip:
- Tax code: is it 1257L, or do you know exactly why it isn't? Check it against your personal tax account on GOV.UK.
- Emergency markers: any W1/M1/X still hanging around months after a job change? Ring HMRC.
- Pension line: present, with an employer contribution alongside yours?
- Student loan: right plan letter — and no deductions if you've paid it off?
- Personal details: correct National Insurance number and name — errors here can mean contributions credited to the wrong record.
- Year-to-date figures: do the cumulative pay and tax look roughly right for the point in the tax year?
- The net number: does take-home look about right against a calculator or last month? Unexplained drops have causes — find them.
None of this needs an accountant. It needs five minutes and a willingness to ring HMRC when something looks off. For free, plain-English guidance on any line you don't recognise, MoneyHelper is the government-backed place to look. And once you know your true take-home, put it to work — that number is the foundation of every budget and every goal you'll set.