After years of study and hours upon hours of training, the thought of starting paid work and having your first paycheque land in your bank account is exciting. But what will your payslip look like? What do the numbers mean? And how much of your pay will you actually 'take home'?
In this blog, we’ll guide you through an example payslip so you know what to expect when you’re paid for the first time.
An example payslip
Using FY1 pay in England for 2024/25, the below image is a simplified payslip showing deductions that will be made from your monthly salary.
It outlines how you get from your basic pay (your annual salary divided by 12) to your net pay (the final amount paid into your bank account after all deductions have been taken).
So, what exactly are these deductions?
1. Income tax
Income tax is a tax levied directly on your personal income that allows the government to cover the costs of running the country – for example, the police, transport and housing.
In the UK, you are taxed on earnings above the national personal allowance. For most people, the personal allowance is £12,570 - but this depends on individual circumstances. So, this means that you don’t pay any tax on the first £12,570 you earn per tax year, which begins on the 6th April.
For the 2024/25 tax year in England, Wales and Northern Ireland, you will pay the basic rate of 20% tax on income between £12,571 to £50,270. For earnings above £50,270, rates will increase. For full details, read our guide to 2024/25 tax rates.
In Scotland, tax rates are calculated differently, but you’re likely to pay roughly the same amount of tax as your colleagues in other parts of the UK. See the Scottish government website for full details.
2. Tax codes
It’s important to understand tax codes, because being on the wrong code will mean you’re paying the wrong amount of tax – possibly more than you need to!
This is what the codes mean:
Codes 1257L, S and C
Your personal allowance of £12,570 gives you a tax code of 1257L in England, 1257S in Scotland and 1257C in Wales. These letters indicate that your personal allowance is being taken into account when calculating income tax that is due.
Codes W1, M1 and 0T
Tax codes ending in W1, M1 or X are emergency tax codes and mean that your personal allowance, or how much of it you have used throughout the tax year, are not being taken into account.
Essentially, you could be paying more tax than you need to. This is easily rectified. Your payroll department will be able to help – just make sure you have either a P45 or P46 to hand, as they will need this to sort out your code.
3. Class 1 National Insurance
Paying National Insurance contributions enables you to access certain state benefits, such as the NHS, a state pension and disability allowances. Contributing to National Insurance is pretty simple – you pay 8% on your earnings over £12,570 and 2% on earnings over £50,270 (for 2024/25).
4. Student loan
If you’ve taken out student loans during your studies, you’ll start repaying these directly from your salary in the April after you qualify.
There are different plans in Northern Ireland (Plan 1), England and Wales (Plan 2) and Scotland (Plan 4). Each have slightly different terms.
Interest rates on these plans are liable to change each year and you can find out what you’re paying by logging onto your online account, as it differs depending on your circumstances.
Your debt is cancelled after 25 years in Northern Ireland, and 30 years in England, Scotland and Wales. If you move abroad, you will still have to pay your student loan if you earn over the set threshold. These thresholds vary from country to country and can be checked on the UK government website.
5. Pension contribution
The NHS offers a generous pension scheme – something you may be pleased to read!
You contribute between 6.5% and 9.8% of your gross salary (before deductions), while your employer contributes 23.7% in England and Wales, 22.5% in Scotland and 23.2% in Northern Ireland.
Members of the NHS Pension Scheme receive tax relief on contributions up to a certain value, which means that if you do opt out, the money that enters your bank account will be taxed – as opposed to the money entering your pension pot which would not be taxed.
So, there you have it. We hope this has helped you prepare to start work this summer. If you want to learn more about key financial matters you should be aware of when starting work, download our Financial Survival Guide now.
Tax treatment depends on individual circumstances and may be subject to change.