How PAYE Works in the UK

What is PAYE?

PAYE (Pay As You Earn) is the system most UK employees use to pay income tax and National Insurance. Your employer deducts these amounts from your gross salary before paying you, which is why your payslip shows a higher gross figure than what actually reaches your bank account.

HMRC tells your employer how much to deduct using your tax code. Student loan repayments and pension contributions may also come out through payroll.

Income tax in 2025/26

For the 2025/26 tax year, most people have a personal allowance of £12,570 — you pay no income tax on earnings up to that amount. Above the allowance, tax is charged in bands:

• Basic rate (20%): roughly £12,571 to £50,270
• Higher rate (40%): roughly £50,271 to £125,140
• Additional rate (45%): above £125,140

National Insurance

National Insurance (NI) is separate from income tax. For employees, NI is typically charged at 8% on earnings between the primary threshold (£12,570) and the upper earnings limit (£50,270), and 2% on earnings above that.

NI contributions can affect your entitlement to some state benefits, including the State Pension, depending on your record.

Student loans and pensions

If you have a UK student loan, repayments are usually taken automatically through PAYE once your income passes the threshold for your plan. Plan 2 repayments, for example, are 9% of earnings above £27,295 per year.

Workplace pension contributions reduce your taxable pay if they are taken before tax (salary sacrifice or net pay arrangements). That can lower income tax but NI treatment depends on how the scheme is set up.

Why your take-home pay changes

A bonus, pay rise, second job or incorrect tax code can change how much tax you pay. If you underpaid tax in a previous year, HMRC may adjust your tax code to collect the difference.

Use a PAYE calculator for a rough estimate, then check your payslip and personal tax account on GOV.UK for official figures.