Understanding Your Payslip - What Paye Tax Code Should I Be?

Between national insurance deductions, pension contributions and your tax code, reading your monthly payslip can feel like a minefield! But if something wasn't quite right or you were over-paying your tax, how would you know? Being able to read your payslip may seem like a trivial skill but many of us aren't confident in what is printed each month.

We explore why it's best to take some time to understand your payslip and importantly what PAYE tax code you've been placed under, depending on your annual salary.

What Is On Your Payslip

Whilst every payslip you have during your working life may be laid out slightly differently, the information stays relatively the same. Here is a list of the information that will feature on your monthly payslip including;

  • Your assigned payroll number
  • The tax period, usually in weeks
  • Your payments, wages, bonuses and any commissions you earn
  • Deductions such as tax, national insurance (NI) which differs depending on how much you earn, any student loans, your pension contributions
  • Your tax code which is unique to you and dictates what tax band you're in and subsequently how much is deducted from your monthly wages
  • A break down of working days or hours if you're paid hourly
  • The employers contribution which is typically any workplace benefits like car allowance or pension contributions etc.
  • Some have the annual salary
  • Your national insurance number
  • And finally, your monthly paid salary total after all deductions are taken into account

UK Salary Tax Brackets

So, how do you know what tax band you're in and what your contributions are? Here is a breakdown of the tax bands in the UK;

If your tax code ends in an L it means you have one job or pension income. Most people will be able to earn £12,570 without being taxed, this is called your personal allowance.

If your tax code is BR or the letter D followed by a number this typically means you have more than one source of income such as a second job, pension or money paid out by rent etc. If your main income source is more than your personal allowance of £12,570 your second income will all be subject to tax. BR means all of your second income is taxed at the basic rate which as of 2022/23 is broken down as follows;

English and Northern Irish basic tax rate 20%

On annual earnings up to £37,700

English and Northern Irish higher tax rate 40%

On annual earnings from £37,701 to £150,000

English and Northern Irish additional tax rate 45%

On annual earnings above £150,000

If your tax code starts with K it means you might be paying tax owed from a previous year and it's more than your personal allowance. You might also have this if you get work benefits, like a company car, that you need to pay tax on. The amount you are taxed can't be more than half the amount you've earned or received that pay period.

If your tax code ends in an M or N it means you receive the Marriage Allowance. Couples who are married or in a civil partnership can transfer 10% of their personal allowance to their partner if they earn within the means-tested limited. The partner receiving the allowance will have the M instead of the L as a tax code, and the other partner has N.

If your tax code ends W1 or M1 it means you're on an emergency tax code. This could be if you've just started a new job your correct tax code might not have been worked out before your first payday. This means you'll possibly be taxed the wrong amount to start, but this is usually updated automatically and will adjust itself over the following month.

Incorrect PAYE Coding

If you're checking your payslips regularly and feel you should be paying more or less tax or feel your tax code may be wrong, you can check how much you should be paying on the government website or by asking your payroll team.

If you're able to, sit down with the payroll team and ask them to explain your payslip in simple terms as they're responsible for making sure you're paid correctly and on time!

Anyone who is owed a tax rebate will be notified by HMRC via post and it's usually then transferred into your bank account a few days later. Likewise, if you owe more tax, HMRC will take it from the source i.e. your salary before it reaches your bank account.

Contact WoodWhite today

If you'd like more information about the payroll services we can offer or to find out more about the free, no-obligation consultation, tax review and services quote, contact our friendly team today.

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