PAYE on payslips explained: deductions and references

Although they sound the same, there’s a big difference between ‘pay’ and PAYE. If you’ve ever received a payslip but have been left confused by something showing as PAYE (or why it’s a deduction), we’ve got the answers you need.

Read on to learn more about what PAYE is. Discover where to find it on your payslip and understand how it impacts your take-home pay.

PAYE on payslips: In summary

• PAYE (Pay As You Earn) is the system by which Income Tax is deducted from your salary. It’s collected throughout the year, rather than in a lump sum at the end of the year.

• Your employee PAYE reference number is unique to your employment. You can find it on your payslip. An employer’s PAYE reference number is different and helps HMRC identify them. 

• PAYE deductions appear as a line item on your payslip, which shows exactly how much Income Tax has been removed from that month’s pay. 

What is PAYE on a payslip? 

If you’ve ever looked at a payslip, you may have noticed something called PAYE — an acronym for Pay As You Earn. It’s an easy enough concept to understand, so let’s break it down:

Pay As You Earn (PAYE) is the system HM Revenue & Customs (HMRC) uses to collect Income Tax directly from an employee.

Rather than paying Income Tax in a single, lump sum at the end of the year, PAYE spreads the tax burden throughout the tax year. This makes it more manageable for both employee and employer. 

Your employer is responsible for setting up payroll and calculating your PAYE liability based on your salary. They will then submit any relevant deductions to HMRC around each pay date. That means you don’t need to calculate or deduct anything and do payroll yourself.

Where to find PAYE on your payslip

If you want to ensure that your PAYE deductions are correct, you need to know where to find them on your payslip. Any payslip should include any PAYE deductions and your PAYE reference number:

Finding your PAYE reference number

On your payslip, next to other deductions such as Student Finance or National Insurance, you should see your PAYE number. This is a unique identifier for your employment. Take note of it, as HMRC will likely request your PAYE number if you need to contact them about your Income Tax for any reason.

Finding your employer's PAYE reference

Your employer also has a PAYE reference number, which differs from your personal one. In most cases, it can appear on payslips as well, although it may not be immediately visible. Check the bottom or top of the document or ask your HR team if you’re unsure. 

Locating PAYE deduction amounts

PAYE deductions appear as a line item on your payslip, usually coupled with other deductions under “Deductions” or “Tax”. It shows the amount of Income Tax removed from that pay period.

Understanding PAYE deductions on payslips

PAYE deductions may seem straightforward, but some scenarios can affect total deductions. This means they might vary between payslips, which could be a cause for concern for some people.

You don’t have to worry, though. Here’s what you need to know to understand PAYE deductions on your payslips:

• How PAYE is calculated. PAYE (or rather, the amount of Income Tax you owe) is based on a combination of your salary, your Personal Allowance, and any other relevant adjustments the HMRC has flagged via your tax code. 

• Why amounts vary. Your PAYE deductions change between payslips if your salary or wage varies, you receive monetary bonuses, or your tax code changes (either due to a pay rise, or moving from emergency tax, for example). Additionally, if you were out of work for a while, you may have been in your Personal Allowance window and are now out of it. If in doubt, check with your employer or HMRC.

• What affects your PAYE. Several things can directly impact your PAYE, such as pension contributions, second jobs, and changes to your circumstances, such as marriage. 

• Annual reconciliation. At the end of every tax year in April, HMRC and your employer reconcile all PAYE payments. If too much or too little was deducted, you may be owed a refund or even owe a small balance to HMRC. 

A breakdown of your employee payslip

Payslips come in a range of forms, but they should all carry the same key information. Whether it’s assessing your PAYE deductions (Income Tax) or understanding gross pay, here are a few of the parts of your payslip you should know: 

• Gross pay. Gross pay is the amount of money you earn before deductions — that includes NI, PAYE, your pensions, and other voluntary contributions.

• Net pay. Once all deductions are calculated, net pay is what’s left — this is your “take-home” amount and what you’ll see enter your bank account. 

• PAYE. Income Tax (or PAYE on your payslip) is the tax-band-based amount taken by HMRC. This is removed automatically from your net pay.

• National Insurance deduction. NI is separate from PAYE Income Tax and should be listed on its own line. This is deducted in the same way PAYE is from your gross earnings.

• Other deductions. Other deductions you may see on your payslip include your pension contribution, student loans, and charitable giving, among others.

• Year-to-date figures. YTD figures are the cumulative totals of tax paid for the current tax year. If you consistently pay £100 in tax, by month 6 your YTD figure will be £600, assuming no changes in tax amounts. 

Changes can happen, so if you’re wondering why your tax code or PAYE looks different, it could be to do with your personal circumstances or a change in your pay. 

Other deductions on your payslip

When reviewing your payslip, you may see additional deductions beyond Income Tax (PAYE) and National Insurance. These can include:

Student loan repayments

If you have an outstanding student loan, repayments will be deducted from your salary. Student Loan Repayments can amount to a significant deduction, with the percentage deducted depending on your student loan plan and income level. Different plans exist, each with its own income thresholds and repayment percentages:

• Plan 1. This applies to students from England and Wales who started their university course between 1998 and 2011. 

  • The annual income threshold is £26,9000 and covers 9% of income over that threshold. 

• Plan 2. This repayment plan covers students from England and Wales who began their undergraduate studies between September 2012 and July 2023. 

  • The annual income threshold for repayment is £29,385 and deducts 9% of income over that amount. 

• Plan 4. Students who gained undergraduate funding through the Student Awards Agency for Scotland will be on Plan 4. 

  • It has an annual repayment threshold of an income of £33,795 and charges 9% of income over the repayment threshold.

• Plan 5. This newer plan applies to students in England who started either an undergraduate or an Advanced Learner course from August 1^st, 2023.

  • The annual threshold for Plan 5 is £25,000, with a rate of 9% over the income threshold. 

• Plan 3 (Postgraduate Loan). Plan 3 applies to Masters and PhD postgraduate loans in both England and Wales.

  • It has an annual threshold of £21,000 with a rate of 6% over the income threshold. 

Your payslip will show these deductions separately so you can track your repayments. If an employee changes jobs or takes a career break, student loans will automatically stop or decrease as it’s based on an income threshold.

If you’re no longer set to meet that threshold due to job loss, for example, you won’t be charged (and a refund may be in order). Any changes should happen automatically via the PAYE system.  

Pension contributions

Pension contributions are an important deduction in the PAYE system. Your employer typically deducts pension contributions from your earnings—often after National Insurance contributions but before Income Tax. This timing may vary depending on your pension scheme. Remember that your employer is also responsible for contributing to your pension as well (this obligation is governed by legislation commonly referred to as 'automatic enrolment').

If you're automatically enrolled into a workplace pension, you'll see these deductions on your payslip. You can usually adjust your contribution rate or opt out if you wish, though opting out may have long-term retirement implications. 

There are several ways to increase your workplace pension contribution:

• Workplace contributions — contact your HR department to increase the percentage of your regular contribution. Many employers match the percentage contribution up to a certain amount, which can help you maximise your pension savings.

• Salary sacrifice — you may be able to ask your employer to put a portion of your salary toward your pension. As your total earnings are reduced, this could also reduce your NI and Income Tax.

• Additional Voluntary Contributions (AVCs) — these are additional optional payments you can make into your workplace pension and are deducted from wages before tax (but not NI). 

Increasing your workplace pension contributions in some way is usually beneficial long-term, thanks to employer match or through salary sacrifice, reducing your total taxable income.

Child Maintenance Deductions

In cases where child maintenance payments are required, employers may deduct these directly from your earnings or pension. These deductions follow instructions from relevant authorities and are handled separately from other payroll deductions. If you're subject to child maintenance obligations, your payslip will itemise these payments so you can track what's been paid.

Child maintenance deductions are calculated on the paying party’s gross weekly income (in addition to the number of children, shared care arrangements, and so on). The basic maintenance rates are:

• 1 Child — 12%

• 2 Children – 16%

• 3 Children or more — 19%

Learn more about child maintenance here.

If circumstances change, you can modify or child maintenance through the Child Maintenance Service (CMS). For example, if your income changes by 25% or more, you may need to report it. 

PAYE on payslips FAQs

What if my PAYE reference isn't on my payslip?

In general, your PAYE employee reference number should always be on your payslip. If your reference number isn’t visible, you should be able to obtain it by contacting your HR team. Your PAYE reference number is important, as you’ll need it if you want to discuss your Income Tax with HMRC in the future. 

Why does my PAYE deduction change each month?

Your PAYE can vary each month as it depends on a range of factors, which can change, e.g., your gross salary, tax code, or personal circumstances, such as marital status. Variations in pay can also cause your PAYE deductions to vary, due to overtime, bonuses, or reduced hours. Rises or changes in circumstances can also alter your tax code, which will change your PAYE deduction calculation. 

Can I claim PAYE back on my tax return?

Yes, you can claim a refund on PAYE through Self-Assessment or by contacting HMRC. However, it’s worth noting that your employer and HMRC reconcile all PAYE at the end of the tax year. That means if you overpaid, you’ll be contacted regarding a refund.

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