Why Is My Pay Less Than I Was Told?

You get offered a job. It’s a good offer and you take it.

You’re told what it pays. An hourly rate, or an annual salary. You try and work out what that means for the month: will it cover the rent or mortgage, will it cover all the other bills, the food shop, and a few nights out with your friends or loved ones, with maybe a little something left over at the end of the month.

But then the money arrives in the bank less than expected and your first pay slip tells you what you earned but also what was deducted.

It’s not that you have been paid the wrong amount. Just that the offer you accepted was before any tax and other items in your pay that changed what you were expecting. So what actually reached your bank account is what is left after those deductions.

Nobody had really ever explained the difference between the two amounts.

What usually comes off before you are paid

Before you even receive your pay, your employer may take off Income Tax, National Insurance, pension contributions and student loan repayments, plus potentially taxable benefits.

Those deductions do not all work the same way, and some may not apply to you at all.

So your payslip shows what had to come off first and what you had left is what you were paid, and the paid part, after the deductions is what you can spend.

The pension deduction if any is slightly different in that it hasn’t really gone. It is still yours, but it has been put into a pension scheme instead of your bank account.

The first time I was paid it did not matter so much

My first payslip was for summer work whilst I was still at school.

I didn’t even look at it. The money went into my bank account and I was happy to have any money at all. It never occurred to me that the amount that arrived might be different from the amount I had been told. To be honest I don’t even remember if I was told and it genuinely didn’t matter. It was extra money for me that meant I didn’t rely on my family for the first time. I had financial independence.

What I didn’t know was that HMRC did not yet know enough about me, so I had been put on an emergency tax code and was being taxed too much.

I eventually found out because two things arrived after the summer job had ended.

The first was an extra payslip, which I finally looked at as it was unexpected, it had arrived a few weeks after I’d gone back to school. It was for the holiday pay I had accrued and not taken, which I had never thought to ask about and wouldn’t have known to.

The second element arrived about six months later. It was a letter with a cheque attached from HMRC, a refund as I had overpaid my tax. I assume once somebody had looked at the year properly and corrected the tax code.

Different elements of my pay with different reasons, both of which I’d not known existed.

The time it mattered enormously

A few years later I was rebuilding my life from a much lower starting point, and the pay, and the payslip meant something completely different.

What arrived after deductions was not pocket money on top of my family supporting me. It was my entire basis of how to survive the month. It had to cover the rent, food, and everything else that had to be paid from it, and so whether the month worked at all was dependent on what arrived in the bank and what that payslip said.

Most of the deductions were correct. Knowing that didn’t make the decisions of what actually got paid and what didn’t any easier.

What I wish somebody had told me was: plan for what reaches your bank account, not the salary or pay you were quoted.

What this is called

Your tax code tells your employer how much Income Tax to take. You can find it on your payslip.

If HMRC does not have enough information about you yet, you may be given an emergency tax code. W1, M1 or X at the end can be a sign of one.

That doesn’t mean your employer has done anything wrong. It means HMRC is working with limited information. Once it has the right information, the code can be corrected and the tax you overpaid can be returned.

Giving a new employer your P45, or filling in a starter checklist if you do not have one, helps them get this right.

Where this stops working

Most deductions on a payslip are supposed to be there. Checking them doesn’t mean you can make them disappear.

But you shouldn’t be paying too much tax because your tax code is wrong.

And if you are ever owed a refund, claim it back yourself. There are companies out there that will do it for you for a fee, the thing they are charging you for is to fill out the form for you.

One thing to do

Find your tax code on your most recent payslip.

If you do not understand it, use the GOV.UK checker below. It will tell you what the code means, and it lets you tell HMRC if what they have about you is wrong.

Then, if you’re starting a job rather than already in one, ask one more question before you accept. When is the first payday, and does it cover the whole period since I started?

A long gap before your first pay may be a little easier to deal with if you know it is coming.

Useful links

• GOV.UK: check your Income Tax for the current year to see your tax code, what HMRC thinks you earn, and to correct it if the details are out of date.
• GOV.UK: check how to claim a tax refund to find out what to do if you have paid too much, including for a previous year.
• Acas: final pay when someone leaves a job for what should be in a final payslip, including pay for holiday you earned and did not take.