Work and tax in the UK — payslip, PAYE, and the basics that actually matter

PAYE and your National Insurance number

For most employees, income tax and National Insurance are deducted at source through PAYE — Pay As You Earn. Your employer calculates the deduction each month based on your tax code; you receive a payslip showing gross pay, tax, NI, and net pay (the amount that hits your bank account).

Your National Insurance number is the equivalent of a tax ID. Apply via gov.uk once you arrive — you can usually start work before it arrives by giving your employer the application reference. HMRC reconciles the tax once the number is issued. Without a NIN you risk being put on emergency tax (often higher than your real bracket) until things settle.

Income tax bands (2026)

Scotland has a different set of bands and rates (six bands, top rate 47%). National Insurance comes on top: 8% on earnings between £12,570 and £50,270, 2% above that. The combined effective marginal rate sits around 28% for most basic-rate earners.

• Personal allowance: £0–12,570 — 0% (tax-free)
• Basic rate: £12,571–50,270 — 20%
• Higher rate: £50,271–125,140 — 40%
• Additional rate: above £125,140 — 45%
• Personal allowance tapers between £100,000 and £125,140 — effective marginal rate of 60% in this slice

Reading a payslip

A UK payslip lists: gross pay, income tax (PAYE), employee National Insurance, pension contribution, any student loan repayment, and net pay. Each is annotated with year-to-date totals so you can spot mistakes early.

Tax codes look like "1257L" — the digits represent your tax-free allowance for the year (in tens). "L" means the standard personal allowance. Other letters (BR, D0, K, NT) signify special situations and are worth Googling if you see them. An incorrect tax code is the most common payslip mistake.

Self-Assessment — when to file

Most employees on PAYE never file a tax return. You need to file Self-Assessment if you have side income (freelancing, rental, large investment income, foreign income), if you earn over £150,000, if you claim the marriage allowance or certain other reliefs, or if HMRC asks you to.

The deadline for online filing is 31 January following the end of the tax year (so the 2025–26 year is due by 31 January 2027). Late filing is a £100 automatic penalty plus daily penalties after 3 months. Most people file via the gov.uk online service or third-party software; an accountant typically charges £200–500 for a simple return.

Workplace pension and ISAs in one paragraph

Workplace pensions are auto-enrolled. The minimum is 8% of qualifying earnings (5% employee, 3% employer). You can opt out, but the employer match is usually a guaranteed return — opting out leaves money on the table. Higher contribution levels (10–15% combined) is a typical professional default.

On top of pensions, the ISA wrapper allows £20,000/year of after-tax savings/investments to grow tax-free forever. For most newcomers, max out the workplace pension to the employer match first, then layer in an ISA for medium-term goals.

Holiday and sick pay

Statutory holiday is 5.6 weeks per year for full-time work (28 days including bank holidays). Many employers offer 25–30 days plus the 8 bank holidays. Part-timers get the equivalent prorated.

Statutory Sick Pay (SSP) is £116.75/week (2026) for up to 28 weeks of illness, after a 3-day waiting period. Many employers offer better contractual sick pay — typically full pay for 1–6 months depending on tenure and seniority. Check your employment contract before you need it.

Self-employed basics

Sole traders register with HMRC and file Self-Assessment annually. National Insurance is Class 2 (£3.45/week, 2026 rate, paid as part of Self-Assessment) plus Class 4 (6% on profits between £12,570 and £50,270, 2% above).

Limited companies are an alternative for higher earners — pay yourself a small salary plus dividends, which can be more tax-efficient at higher incomes. Setting up a Ltd is cheap (£12 at Companies House) but the admin overhead (Confirmation Statement, filing accounts, corporation tax) is real. Above ~£50–60k of profit, a Ltd usually wins; below that, sole-trader is simpler.