How payroll works out one month
- Tax-free pay for the period. Tax code 1257L gives £12,579 a year of free pay in the PAYE tables, so £1,048.25 a month or £241.90 a week.
- Taxable pay is gross pay minus pension (net pay arrangement or salary sacrifice) minus free pay, rounded down to the whole pound.
- Tax bands are divided the same way. The 20% band covers roughly the first £3,142 of taxable pay in a month (£37,700 ÷ 12).
- National Insurance uses the monthly thresholds: 8% between £1,048 and £4,189, then 2%. Weekly: £242 and £967.
- Student loan is 9% above one-twelfth (or one fifty-second) of the annual threshold, rounded down to the pound.
Worked example: £2,900 a month
£2,900 gross in a month, tax code 1257L, England, 2026/27
Taxable pay is £2,900 − £1,048.25 = £1,851 after rounding down, and 20% of that is £370.20. National Insurance is 8% of £1,852: £148.16. Net pay is £2,381.64.
Net pay£2,381.64this month
- Income tax (PAYE)
- £370.20
- National Insurance
- £148.16
- Student loan
- £0.00
Payslip · 2026/27 · month 1 basis
- Gross pay
- £2,900.00
- Tax-free pay this periodfrom tax code 1257L
- £1,048.25
- Taxable pay (rounded down to £1)
- £1,851.00
- Income tax
- −£370.20
- National Insurance8% between £1,048 and £4,189
- −£148.16
- Net pay
- £2,381.64
- Employer NI (not deducted from you)
- £372.45
With a Plan 2 student loan the same month has £40 taken for the loan (9% of the pay above £2,448.75).
What changed in April 2026
The NI thresholds and rates did not change: £1,048 a month for employees, £417 for employers. Student loan monthly thresholds rose to £2,241.66 (Plan 1), £2,448.75 (Plan 2) and £2,816.25 (Plan 4). Scottish band limits per month changed because the starter and basic bands were widened.
Reading your payslip
- Tax code and basis. A code ending W1 or M1 means non-cumulative; without it your tax should balance over the year.
- Year-to-date figures let you check the cumulative tax: tax due on total pay to date, minus tax paid in earlier months.
- Pension line. If NI is lower than this calculator shows, your pension is probably salary sacrifice.
- Keep your payslips — you need them to check your P60 at the end of the year.