PAYE and National Insurance on one UK payslip: a worked example from the payroll engine

Most explanations of UK payroll stop at the rules. This one starts from the output: the figures below are copied verbatim from the Peoplio payroll engine (the GB jurisdiction module) for a monthly gross of £3,500 on the standard 2025/26 tax code 1257L, and then each line is traced back to the rule that produced it.

Engine output for £3,500/month, tax code 1257L: PAYE Income Tax £490.35 · National Insurance (Class 1) £196.20 · Pension auto-enrolment, employee £149.00 · Pension auto-enrolment, employer £89.40 (an employer cost, not a deduction).

PAYE: £490.35

Tax code 1257L means a personal allowance of £12,570 a year. The engine annualises the salary (£3,500 × 12 = £42,000), subtracts the allowance (£29,430 taxable) and applies the 2025/26 bands for England, Wales and Northern Ireland: 20% on the first £37,700 of taxable income, 40% on the next £74,870, 45% above that. £29,430 sits entirely in the basic-rate band, so annual tax is £5,886.00 and the monthly deduction is £490.35.

Other codes change only this step. BR taxes everything at 20% with no allowance (£3,500 × 20% = £700.00 a month in the engine's output). A K code adds income instead of granting an allowance: K475 adds £4,750 to the annual figure, which is why the engine returns £930.30 for the same salary. 0T applies the bands with no allowance; NT means no tax.

National Insurance: £196.20

Employee Class 1 NI is 8% of annual earnings between the primary threshold (£12,570) and the upper earnings limit (£50,270), then 2% above the limit. For £42,000 that is 8% of £29,430 = £2,354.40 a year, or £196.20 a month. Nothing is charged at 2% because the salary is below £50,270; at £6,000 a month (£72,000 a year) the engine reports £287.55, which includes 2% on the £21,730 above the limit.

Auto-enrolment pension: £149.00 employee, £89.40 employer

Minimum contributions are calculated on qualifying earnings, the slice between £6,240 and £50,270 a year. For £42,000 that slice is £35,760; 5% is the employee minimum (£1,788 a year, £149.00 a month) and 3% the employer minimum (£1,072.80 a year, £89.40 a month). The employer figure appears on the payslip as a contribution, not a deduction from pay.

The engine notes on every run that this assumes the employee is eligible for auto-enrolment (aged 22 to State Pension age, earning above the trigger, not opted out). Eligibility checks are not applied yet because the employee record does not carry date of birth or an opt-out flag.

What the engine deliberately does not do

The output carries its own caveats, and they are worth repeating. Student loan deductions and marriage-allowance transfers are not modelled beyond what a code's letter already encodes. Scottish tax codes are recognised (S1257L is parsed) but Scottish bands are not implemented — the engine falls back to rest-of-UK bands and says so in a note. Band widths and thresholds are the 2025/26 values and must be re-verified every April.

Most importantly: HMRC Real Time Information submissions are not implemented in this engine. Peoplio calculates and documents the deductions; the RTI filing itself goes through a UK payroll provider integration. If a vendor tells you their calculator "files PAYE", ask which part of that sentence is software and which part is a person.

Checking a payslip yourself

Annualise the gross, subtract the allowance encoded in the tax code, run the bands, divide by twelve. Do the same for NI with the two thresholds, and for pension with the qualifying band. If a figure on a payslip cannot be reproduced with those four steps and the current year's constants, the difference is either a code the software applies that you did not expect (BR, K, NT) or a rule outside the engine's scope — and both are worth a question before the payment run, not after.