Pay & Tax in the UK: PAYE, National Insurance & Your Payslip Explained

How PAYE works

Most people employed in the UK are paid through a system called PAYE — Pay As You Earn. It means your employer calculates and deducts income tax and National Insurance from your pay before transferring the remainder into your bank account each week or month. You do not need to file a tax return for income covered by PAYE unless you have other untaxed income, earn above £100,000, or are self-employed alongside your employment.

HMRC tells your employer how much tax to deduct by issuing you a tax code. The most common is 1257L, which instructs your employer to apply the standard Personal Allowance of £12,570 — the amount of income you can earn in a tax year before any income tax is due. Your employer uses this code cumulatively across the year, so overpayments in one month are corrected in the next.

The UK tax year runs from 6 April to 5 April the following year. Your employer submits payroll data to HMRC in real time through a process called RTI (Real Time Information), so HMRC receives details of your pay and deductions each time you are paid, not just at year end.

Understanding your tax code

Your tax code appears on your payslip, your P60, and any letter HMRC sends you. It tells your employer how to calculate your tax-free income for the year. The numbers in the code represent your tax-free allowance divided by ten — so 1257 means £12,570 of tax-free income. The letter gives additional context about your situation.

Source: HMRC — GOV.UK tax codes guidance

If your tax code looks wrong — for instance if you receive an emergency code W1 or M1 when you have been employed for some time — contact HMRC directly on 0300 200 3300 or use your Personal Tax Account at GOV.UK. Your employer cannot change the code themselves; it must come from HMRC.

Income tax bands and rates

Income tax in England, Wales, and Northern Ireland is charged in bands. You pay the rate for each band only on the income that falls within it — not on your total income. Scottish taxpayers are subject to different rates set by the Scottish Parliament.

Source: HMRC — 2025/26 tax year. Personal Allowance reduces by £1 for every £2 earned above £100,000, reaching zero at £125,140.

National Living Wage and National Minimum Wage

Every worker in the UK is entitled to at least the National Living Wage or the National Minimum Wage depending on their age. These are legal floors — no employer may pay below them regardless of contract type, sector, or employment status. Underpayment is enforced by HMRC and carries financial penalties.

Source: GOV.UK — rates effective 1 April 2026.

The National Living Wage applies to all workers aged 21 and over, including those on zero-hours contracts, agency workers, and casual workers. It does not apply to the genuinely self-employed. If you believe you are being paid below the legal minimum, you can report this to HMRC at GOV.UK — your employer cannot retaliate against you for doing so.

Reading your UK payslip

Employers are legally required to provide a payslip on or before each payday. Since April 2019, payslip rights have extended to workers (not just employees), including those on zero-hours contracts. Understanding what each line means helps you catch errors quickly — and errors do happen, particularly when tax codes change or you move between jobs.

What your payslip must show

• Gross pay: your total earnings before any deductions — this is the figure your income tax and National Insurance are calculated on.
• Income tax deducted: the amount taken under PAYE for that pay period, based on your tax code.
• National Insurance deducted: your employee NI contribution for that pay period (see below for rates).
• Pension contribution: if you are enrolled in a workplace pension, the amount deducted and the employer's matching contribution.
• Net pay: what is actually paid into your account after all deductions.
• Tax code and NI category letter: confirms the basis on which your deductions were calculated.
• Year-to-date figures: cumulative totals for earnings and deductions since 6 April — useful for checking PAYE is running correctly over time.

National Insurance: what it is and why it matters

National Insurance is a separate contribution from income tax, though it is deducted at the same time through PAYE. Where income tax funds general government spending, National Insurance is directly linked to specific entitlements — it builds your record towards the State Pension, the NHS, and a set of contributory benefits that require a qualifying contribution history to access.

Your National Insurance number — a unique reference in the format AB 12 34 56 C — is the identifier that connects every contribution you make to your personal record at HMRC and the Department for Work and Pensions. Without it, your contributions cannot be recorded correctly, which means gaps in your State Pension entitlement and potential problems accessing benefits later.

This is why obtaining your NI number is treated as one of the first practical steps when working in the UK — it is required to work legally, to have the correct deductions made, and to ensure every contribution counts toward your future entitlements.

Employee National Insurance rates 2025/26

Source: HMRC — 2025/26 Class 1 employee contributions. Employer NI is in addition to these amounts and is not deducted from your pay.

Your National Insurance number

Your NI number is issued once and stays with you for life, regardless of how many jobs you have, whether you move abroad and return, or whether your name changes. It is not proof of your right to work — that requires a separate Right to Work check by your employer — but it is fundamental to your UK tax and benefits record.

If you are moving to the UK to work, applying for your NI number as early as possible is one of the most consequential administrative steps you can take. It is the mechanism through which all your PAYE contributions, pension contributions, and qualifying years for the State Pension are tracked. You can start work before it arrives, but you want it in place quickly so your record starts building from your first payslip.

How to apply for a National Insurance number

The application is made online via GOV.UK and is free of charge. There is no fee at any stage of the process — if any third-party service charges you to apply, it is not the official route. The steps are as follows:

1. Check your eligibility: you must have the right to work or live in the UK. Most visa holders and settled status holders are eligible.
2. Go to GOV.UK: search for "apply for National Insurance number" and use the official government service only at gov.uk/apply-national-insurance-number.
3. Prove your identity: you will need a passport, biometric residence permit (BRP or eVisa), or another accepted identity document. The online service may ask you to complete a video or face-to-face identity check.
4. Complete the application: follow the on-screen steps to submit your identity documents and confirm your details. You will receive a confirmation email with your application reference number immediately.
5. Receive your number: HMRC advises it can take up to 4 weeks to receive your NI number after your identity has been verified. Your number arrives by post.

National Insurance and access to benefits

Your National Insurance record is the gateway to a specific group of UK benefits — those described as contributory, meaning entitlement is earned through contributions rather than assessed purely on current income or circumstances. These sit alongside means-tested benefits (such as Universal Credit) which are assessed differently.

Building a strong NI record is one of the long-term reasons why having your National Insurance number in place from the start matters so much. Every qualifying year of contributions adds to your State Pension entitlement and to your eligibility window for contributory benefits if your circumstances change.

Source: GOV.UK. Eligibility conditions may vary depending on visa status and immigration conditions — always check your specific circumstances at GOV.UK.

Checking and protecting your NI record

HMRC maintains your National Insurance record and you can view it at any time through your Personal Tax Account at GOV.UK. The record shows which tax years are qualifying, which have gaps, and how many years you have so far. This matters particularly if you plan to stay in the UK long term, as it tracks your progress toward the 35 qualifying years needed for the full State Pension.

If you have gaps in your record — for instance because you worked informally, were not employed in a particular year, or moved to the UK partway through a tax year — it may be possible to fill them by making voluntary Class 3 National Insurance contributions. The deadline and cost vary depending on the year involved. HMRC's website contains a check and voluntary payment facility, or you can call the Future Pension Centre on 0800 731 0175.

Protecting your NI number matters too. It should never be shared unnecessarily — not in response to unsolicited calls or emails, and not with employers who have no payroll reason to hold it. HMRC will never ask for your NI number by email or text. If you think your number has been misused, contact HMRC's National Insurance Helpline on 0300 200 3500. If you need help with a NI number application, the dedicated helpline is 0800 141 2079 (Monday to Friday, 8am to 5pm).

What this means in practice

The UK pay and tax system is designed to be largely invisible when it is running correctly. PAYE means most employed people never need to file a self-assessment return, and your NI contributions accumulate without any additional action on your part. The system works well for straightforward employment situations — but it requires you to be engaged enough to catch errors when they occur, whether that is a wrong tax code, a payslip that does not add up, or a gap in your NI record that should not be there.

For those arriving in the UK to work, the most important early action is getting your National Insurance number applied for promptly. Everything else — PAYE codes, payslip deductions, benefit eligibility — connects to that record. The second most important habit is keeping your payslips and P60s, as these documents carry evidential weight for mortgages, benefit claims, and visa applications in ways that bank statements alone do not always satisfy.

The figures on tax codes, rates, and minimum wages change each April. The underlying structure — PAYE, NI contributions, the Personal Allowance — is stable enough that once you understand how the components fit together, updating your knowledge when rates shift becomes straightforward. GOV.UK and your Personal Tax Account are the authoritative sources, and both are free to use.