Working for an employer Pay and deductions
As an employee, most of the tax you pay disappears from your pay packet before you ever see it.
You ‘pay as you earn (PAYE)’, with your employer deducting income tax at source, along with National Insurance contributions and any other deductions.
Roll your mouse over the payslip below for a description of the most common deductions.
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| Pay and deductions explained | |
|---|---|
| Deduction/Pay | Explanation |
| National insurance | You pay National Insurance each pay period if your earnings are more than a set threshold (£5,720 in 2009-10 and 2010-11 or the monthly or weekly equivalent). Although some payments (such as pension contributions) qualify for income tax relief, there is no relief from National Insurance. |
| PAYE | Income tax deducted. Broadly, tax is charged on taxable income less any deductions that qualify for tax relief and your personal allowance. In this case, it is based on the salary less the pension contribution, payroll giving and a personal allowance of £6,475 for the year as shown by the tax code 647L. |
| Payroll giving | A tax-efficient way of giving to charity through a scheme at work. Your donations qualify for full income tax relief. A widely used scheme is called Give As You Earn (GAYE). |
| Pension | This may be contributions to your employer’s pension scheme (including any additional voluntary contributions) or contributions that will be passed to a personal pension provider. |
| Student load repayment | If HMRC has told your employer to start making deductions and you are earning at a rate of £15,000 a year (£1,250 a month, £288.46 a week), repayments are worked out as 9% of your income above that threshold. |
| Other deductions | In this case, 9% x (£2,435.50 - £1,250) = £106.70. |
- Are you self employed? Take a look at our guide for all tax matters
- Confused about your tax code? Read our full guide
- For any tax query, call our experts on the Which? Money Helpline
