Understanding your payslip: tax codes explained for students

If it’s the first time you’re receiving a payslip, or maybe just the first time you’ve really studied one, you probably have some questions.

Maybe the wage on your payslip is different from last month, even if it’s just a few pounds. Maybe the deductions look a bit hefty. Whatever it is, we’ve got you covered.

Before you march to confront your company’s finance officer, it might be something you’ve misinterpreted from your payslip.

So, here’s what it all means.

Payroll number

This is a unique number that’s assigned to you when you join a company and they put you on their payroll. It means the finance or payroll team can easily identify you and pull up your records if necessary.

Pay period

This is the length of time that corresponds to pay you receive. If you get monthly payslips, it will show you the month. If you receive weekly payslips, it will show you the week. In both circumstances, this will likely be shown in date format. A start date and end date for the period of work you’re going to be paid for.

Tax period

This is listed as a single number and it tells you which month of the tax year your payslip is for. The tax year runs from 6 April to 5 April the following year. So, if your payslip has a “1” in the tax period box, it’s for April. If it says “12”, it’s for March the following year.

Tax code

Your tax code tells HMRC how much tax you’ll pay. Tax comes out of your gross pay. Your employer deducts it, files it with HRMC, and it’s paid automatically.

There’s nothing you need to do, unless you earn another income elsewhere that requires you to file a tax return. This might be income from your own Etsy shop, for example. In this instance, you would register for self-assessment and file a tax return with HMRC, making sure to list your other employment and any tax already paid.

National Insurance number

Your National Insurance (NI) number is a number you receive from the government just before your 16th birthday. Or, if you weren’t born in the UK, it’s one you apply for once you’re registered as living here.

Your NI number connects you to your tax payments and your National Insurance contributions, which pay for things like national healthcare and other public services. It also tracks certain benefits you receive from the UK social system as well as any pension you may receive when the time comes.

Gross pay

This is your pay before any deductions are made. These include things like your tax contribution, National Insurance payment and student loan repayments.

Your gross pay is the monthly equivalent of your annual salary, plus any extra earnings or bonuses you may have received on top.

Net pay

Your net pay is the actual money you’ll receive for that pay period, once all your deductions have been taken. It’s the exact amount you should see enter your bank account.

Deductions

The bits in between gross and net pay that make your final monthly wage, the one that reaches your bank account what it is. These include:

National Insurance contribution

Your national insurance payment is a percentage of your gross pay that’s deducted and sent to HMRC to help pay for public services. It’s something everyone who earns a certain wage does and it’s all part of taking care of everyone in society, including you.

Pension contribution

Every UK employer must offer a workplace pension scheme and you’re automatically enrolled into it. You’ll contribute a percentage of your salary each month to your pension pot, where it accumulates until you retire. It’s something you deliberately have to opt out of to stop payments.

Student loan repayments

If you studied at university and paid for it via the Student Loans Company, you’ll start paying this back once you’re in employment and earning over a certain amount.

If you started your uni course on or after 1 August 2023, you’ll be on Plan 5 and the threshold to begin paying back your student loan is £25,000 a year, £2,083 a month or £480 a week.

If you started your course between 1 September 2012 and 31 July 2023, you’ll be on Plan 2. The income thresholds to start repaying your loan are £28,470 a year, £2,372 a month or £547 a week.

All these salary figures refer to your gross pay.

Your company benefits

Certain company benefits or schemes are paid for from your salary. This could be private health insurance or a bicycle as part of the Cycle to Work Scheme. If you’ve agreed to an arrangement like this, you’ll see the monthly instalment which pays for these benefits as a deduction on your payslip.

Payments made by your employer

Your employer has a duty to make some payments on your behalf. These include:

Your employer’s NIC

This is a National Insurance Contribution that an employer makes for all their workers who earn over a certain amount. Like your own NIC, this helps to fund public services and welfare benefits.

Your employer’s contribution to your pension

Employers pay a certain percentage towards your pension, on top of what you pay.

The amount an employer pays differs from business to business and you might want to choose where you work based on a higher level of employer contributions.

For example, you often find that finance companies (high street banks, investment banks, fintech businesses and insurance companies) offer a higher level of employer contributions, while businesses operating in very different industries, often with a much younger workforce (one less concerned with idea of taking a pension), are more likely to offer the basic level of contribution.

Your company expenses

If you pay for certain company expenses, such as meals out with a client or trips to their offices, you can sometimes get the company to give that money back to you in your salary.

You’ll have to provide proof of any purchases, and sometimes input them into a company system. These will appear as an additional line item on your payslip. This is money paid back to you, not deducted from your wage.

Why is my payslip different each month?

Your earnings can fluctuate depending on many things, including:

• Differences in hours work, bonuses received, etc.
• Changes to student loan contributions as a result of an increase in wage
• Changes to your tax code, which affects the tax you pay
• Tax adjustments HMRC makes to course-correct payments throughout the year
• Changes to pension contributions
• Payroll timing (if two pay dates fall in the same month)

Many of these factors are interlinked, so one adjustment can affect another and the reasons behind your final figure isn’t always clear.

Where can I find my payslips?

You may get a paper copy of your payslip but it’s more common to receive a login to a company portal where you can access all payslip records.

You may or may not receive a notification email each time a payslip is generated, so make sure you log in and check your payslip regularly to check everything is correct.

Why it’s best to keep a copy of your payslips

This is more about convenience and risk aversion than anything else.

A responsible employer will have a robust payroll system in place to manage the financial records of all their employees and will make their payroll team available to answer your questions and locate any payslips you might need for.

They should be able to draw upon records for your entire time you worked for them, even after you’ve left the business.

But not every employer is like that; some may not even be law-abiding. And, depending on the circumstances of your exit or how much time the payroll team has at its disposal, it may take some time for you to obtain payroll documents.

Before you dismiss this as just more admin, remember there are several reasons why you might want to have access to previous payslips. Proof of income, for example, if necessary if you want to apply for a loan or credit card.

You might also need your payslips to submit a tax return to HMRC, should you take on any freelance or contract work outside of your PAYE employment.

What to do if you think there’s been a mistake

If you’ve checked your payslip against the money that’s gone into your bank account for that pay period, raise a query with your company’s payroll department.

Send them a polite email either detailing the issue or asking if they might go over your payslip for [insert month] if you suspect something has gone wrong, but you aren’t sure.

All good payroll departments want to keep accurate records and make sure everyone who works at the company feels fully informed about the process. So, if in doubt, send them an email.

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