Trust Centre

Methodology - extended worked examples

Exactly how we compute the figures we show you. Worked examples, edge cases, and known limits.

PayslipIQ provides educational information and estimated calculations only. It does not provide tax, legal, financial, payroll, accounting, pension, benefits or employment advice. Always verify your payslip, tax code, deductions and take-home pay with your employer's payroll department, HMRC, your pension provider, a qualified accountant, tax adviser or another appropriately qualified professional.

Income tax - cumulative basis

For a tax code 1257L on a cumulative basis, we apply the standard personal allowance of £12,570 spread across the tax year. For monthly pay this is £1,047.50 per month. We then apply the 20%, 40%, and 45% bands to the remaining taxable pay, against thresholds of £37,700, £125,140 (with personal allowance taper between £100,000 and £125,140) on an annualised basis. For Scottish taxpayers we apply the Scottish bands instead.

Worked example: monthly gross pay of £4,000 on tax code 1257L. Annualised £48,000. Tax-free £12,570. Taxable £35,430. Basic-rate 20% on the full taxable amount because it stays below £37,700. Annual tax £7,086. Monthly tax £590.50.

National Insurance - Category A

Class 1 employee NI on Category A is 8% between the Primary Threshold and Upper Earnings Limit, 2% above the UEL. NI is applied per pay period on the period thresholds, not on annualised figures, which is why NI does not always cumulatively rebalance the way income tax does.

Worked example: monthly gross pay of £4,000. Primary Threshold (monthly) £1,048, Upper Earnings Limit (monthly) £4,189. NI on £2,952 at 8% equals £236.16. No earnings above the UEL this period. Total NI £236.16.

Pension under net pay arrangement

Under net pay, the contribution is taken from gross pay before income tax. So if you contribute 5%, your taxable pay is your gross pay less the 5% contribution, and tax is calculated on the smaller figure. NI is calculated on the gross before pension because net pay arrangements do not provide NI relief.

Worked example: gross £4,000, 5% net pay pension £200. Taxable pay for income tax £3,800; for NI £4,000.

Pension under salary sacrifice

Salary sacrifice reduces both the income tax and the NI base. Your contractual gross pay is reduced by the sacrificed amount; your employer pays it directly into the pension.

Worked example: contractual £4,000 with 5% (£200) sacrifice. Sacrificed gross £3,800. Income tax and NI both calculated on £3,800. Net saving on top of net-pay equivalent: 8% NI on £200 equals £16 per month, or £192 a year.

Student loan deductions

Calculated as 9% of earnings above the plan threshold (6% for postgraduate). The threshold is applied per pay period not cumulatively.

Worked example, Plan 2 (£28,470 annual threshold, equivalent £2,372.50 monthly): monthly gross £4,000. Above threshold £1,627.50. Deduction 9% equals £146.48.

Known limits of accuracy

We reproduce HMRC's published thresholds and rates each tax year. Where individual employer rules deviate (NHS Pension tiered rates, Teachers' Pension banding, agency-specific umbrella margins), our standard calculator may differ by a small amount from your actual payslip. We flag this in the results page when relevant.

We do not currently model: directors' annual NI calculation, non-resident tax codes, Marriage Allowance recipient codes (M/N suffix) at perfect precision, or partial-year P45 carry with mid-year code changes. These cases produce results that should be treated as indicative.