How are payroll deductions calculated in the UK?

Everyone loves receiving a paycheck. However due to payroll deductions in the UK, we don't get to keep every penny we earn.

An employee's wages or salary are deducted from his or her gross salary through payroll deductions in the United Kingdom. Employers deduct these from employee paychecks before they receive net pay. There are many types of deductions, including contributions towards taxes, social security, pensions, and other benefits. Statutory regulations or employment contracts typically outline deductions. The following list provides some insight into where your money is going with some common payroll deductions:

The most common payroll deductions in the UK

Income Tax

Most people already know about income tax. Depending on your individual tax code and income threshold, this is the main source of government revenue.

National Insurance Contributions (NICs):

A person's National Insurance Contributions provide a form of social insurance in the UK, helping to fund hospitals, doctors, and other medical facilities. You can kind of understand the reasoning behind this deduction, even though no one likes deductions from their paychecks.

There are two elements to national insurance:

Employee’s NICs: Based on your earnings, you contribute to the National Insurance system. Furthermore...

Employer’s NICs: Contributions made by your employer on top of your wages.

Pension Contributions:

The UK requires all employees to be enrolled in a pension scheme, unless they earn less than:

  • £520 a month

  • £120 a week

  • £480 over 4 weeks

Contributions to pensions can generally be divided into two categories:

Workplace Pension Scheme: Employers contribute to a pension scheme through their current employees. There are several factors to consider when determining which pension plan works best for your organization.

Personal Pension Contributions: Employees can also contribute to their own personal pension plans. As long as the employee decides to contribute, they can be taken between jobs.

Student Loan Repayments: These payments will start to come out once you reach a certain income level after attending university. You will have to begin paying at different points based on your Plan, and the amount you pay will vary as well. Check out a full breakdown.

The amount you will be charged depends on the type of loan you have and your income.

Union Dues

Those who belong to a trade union will have their dues deducted from their paychecks each month. A typical union activity will be collective bargaining and representation. Union fees are either a percentage or a fixed amount, depending on the union.

Company Benefits

Non-cash benefits, like health insurance, company cars, or any other perks, will be deducted.

It depends on the value of the benefit as well as the specific terms of the benefit scheme provided by the employer how this will be calculated.

Attachment of Earnings Order

There will often be a monthly deduction if a court orders a deduction for child support or debt repayment. According to the individual case and the fee agreed to, the amount deducted each month will vary.

Season Ticket Loan Repayments

You may be required to repay season ticket loans if your employer offers them. A season ticket loan allows employers to cover the upfront cost of season tickets. As a deduction from salary, the costs are repaid over a specified period.

Childcare Vouchers

A childcare voucher is a salary sacrifice benefit that helps working parents manage the costs of registered childcare. Each month, you will see this deducted if you are subscribed.

Cycle-to-Work Scheme Repayments

Your employer may deduct bike repayments from your pay if you participate in a cycle-to-work program.

You can expect to see some payroll deductions each month in the UK. 

If you have any questions, please do not hesitate to reach out to our team at Zyla Accountants.

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