PAYE Calculator UK

What Is PAYE and How Do PAYE Deductions Work?

PAYE (Pay As You Earn) is the system UK employers use to collect Income Tax and National Insurance on HMRC’s behalf. Instead of receiving your full salary and settling a tax bill later, your employer calculates and deducts tax from every payslip using your tax code, then pays it to HMRC for you. Most employees never need to file a tax return — PAYE handles it automatically.

Income Tax under PAYE

For 2026/27, the first £12,570 of annual income is tax-free (the Personal Allowance, tax code 1257L). In England, Wales and Northern Ireland, income above this is taxed at 20% up to £50,270, 40% up to £125,140, and 45% above that. Scotland uses six bands from 19% to 48% — select Scotland in the calculator to apply them. Above £100,000 the Personal Allowance is withdrawn at £1 for every £2 earned, creating an effective 60% marginal rate between £100,000 and £125,140.

National Insurance under PAYE

Employee Class 1 National Insurance is deducted alongside Income Tax: 8% on earnings between £12,570 and £50,270 a year, and 2% above £50,270. Unlike Income Tax, NI is worked out per pay period rather than annually, so a large bonus month can attract less NI than the same amount spread evenly.

Your tax code drives everything

Your tax code tells your employer how much tax-free pay to give you. 1257L is standard; codes like BR (all income taxed at basic rate), D0 (all at higher rate) or K codes (negative allowance) change your deductions significantly. If your code looks wrong, check it with HMRC’s online service — you may be due a refund. Our tax code calculator explains what yours means.

Pensions and student loans

Workplace pension contributions are usually taken through payroll too. Salary-sacrifice pensions reduce your gross pay before tax and NI are calculated, saving both. Student loan repayments are collected via PAYE once you earn above your plan’s threshold — for 2026/27: Plan 1 £26,900, Plan 2 £29,385, Plan 4 £33,795, Plan 5 £25,000, Postgraduate £21,000.

Gross pay vs net pay

Your gross pay is your salary before deductions; your net pay (take-home) is what lands in your bank account after PAYE Income Tax, NI, pension and student loan. The calculator above shows both, with monthly and annual figures. For a payslip-style monthly view, try our payslip calculator, or use the take-home pay calculator for weekly and daily breakdowns.