How to read your payslip and tax code for student loan deductions. Understanding PAYE calculations, tax code errors, and ensuring correct deductions.
Your monthly payslip contains a wealth of information about your student loan deductions, but most people glance at the "net pay" figure and ignore the rest. This is a costly mistake. Buried in those numbers and codes are details that determine whether you're paying the right amount, whether your employer has set things up correctly, and whether errors are costing you hundreds of pounds annually. Understanding how to read your payslip and tax code isn't just academic knowledge. It's practical financial protection.
The most critical element is your tax code, a seemingly cryptic combination of numbers and letters that appears at the top of your payslip. Hidden within this code are markers that tell your employer whether to deduct student loans and which plan you're on. Get these wrong, and you could be paying when you shouldn't, or worse, not paying when you should (creating arrears you'll owe later with interest). Tax code errors are surprisingly common, especially after changing jobs, returning from maternity leave, or moving between employment and self-employment.
Student loan deductions themselves follow specific rules based on your monthly income and threshold for your plan type. But PAYE calculates these monthly in isolation, treating each pay period as if it represents your full-year earnings. This creates systematic issues for anyone with variable income, part-year employment, or bonuses. Your December payslip might show a massive student loan deduction because of your Christmas bonus, even though your annual income is actually below the threshold. Unless you understand how to read your payslip and check the calculations, these overpayments slip through unnoticed.
Learning to decode your payslip takes fifteen minutes. Checking it takes thirty seconds per month. Those thirty seconds monthly can save you hundreds of pounds annually by catching errors, identifying overpayments, and ensuring your employer is deducting correctly.
Payslips vary slightly between employers and payroll systems, but all contain core information in roughly similar formats:
The "Year to Date" (YTD) columns are crucial for student loan verification. They show cumulative figures from April 6 (start of tax year) to current date. These help you verify whether your annual student loan deductions align with what you should actually owe based on your annual income.
Your tax code determines how much tax-free income you receive and whether student loan deductions apply. It typically appears as a number followed by letters.
Your code shows 1257L but you have a student loan. No deductions happen. You're building arrears you'll owe later with interest.
Your code shows SL but you're actually on Plan 5 or have a postgraduate loan instead. Wrong deductions are taken.
Sometimes codes show "SL SL" (duplicate) causing double deductions. This is a payroll error.
Started new job and got put on emergency code (W1 or M1). Months later, it's still emergency. This causes incorrect cumulative calculations.
Understanding the monthly calculation helps you verify your payslip is correct:
Monthly gross pay: £2,800
Plan 2 monthly threshold: £2,274.58
Amount above threshold: £2,800 - £2,274.58 = £525.42
Student loan deduction: £525.42 × 9% = £47.29
Your payslip should show approximately £47.29 student loan deduction (might be £47.28 or £47.30 due to rounding).
Take your gross pay for the month, subtract your plan's monthly threshold, multiply by 9% (or 6% for postgraduate). The result should match your student loan deduction line on the payslip. If it doesn't, there's an error.
Use our Monthly Repayment Calculator to verify your monthly deduction is correct.
Tax codes operate in one of two ways, affecting how student loans are calculated:
Your tax and student loan calculations account for all previous pay periods in the tax year. If you were underpaid in one month, you might overpay in the next to balance out.
Each pay period is calculated independently. No account taken of previous months. Can cause significant overpayment or underpayment issues.
Non-cumulative (W1/M1) would calculate June as:
(£3,500 - £2,274.58) × 9% = £110.29
Cumulative calculates:
Total gross April-June: £7,500
Total threshold April-June: £6,823.74
Amount above threshold: £676.26
Total owed for three months: £60.86
Cumulative is much fairer. It recognizes that your first two months were below threshold and adjusts accordingly. Non-cumulative treats June in isolation and massively overcharges.
W1/M1 codes should be temporary. If your code still shows W1 or M1 after 2-3 months, contact HMRC to get it corrected to cumulative.
Variable income creates the most common payslip confusion and overpayment scenarios:
Teacher works September-July (11 months), earning £28,000 annually. Monthly salary: £2,545.45.
Result: Overpaid £204.73 (£268.18 - £63.45). This happens because monthly PAYE doesn't know you're only working 11 months.
Regular monthly salary: £2,200 (below Plan 2 threshold). December bonus: £2,000. Total December gross: £4,200.
The deduction might be correct if your annual income justifies it. But if you're normally below threshold, this could be overpayment.
When you receive a bonus, your payslip that month will show higher gross pay and higher student loan deduction. Check whether the deduction is correct for that month's total gross. If it seems excessive, verify your tax code is cumulative, not W1/M1.
Having multiple jobs creates complex payslip scenarios:
Accept this is how PAYE works with multiple jobs. Track your combined income throughout the year. At year-end, if your total student loan deductions exceed what you should have paid based on combined income, claim a refund through Self Assessment or by contacting HMRC directly.
Use our Multiple Jobs PAYE Split Calculator to project overpayments and plan for refund claims.
Two documents matter enormously for student loan verification:
Given by employer when you leave a job. Contains:
When starting new job, give P45 to new employer. They use it to set your correct tax code, continue cumulative calculations, and ensure student loan deductions continue correctly. Without P45, new employer puts you on emergency code, causing student loan calculation problems.
Given by employer in May/June following end of tax year. Contains:
Essential for verifying whether you've overpaid or underpaid student loans, filing Self Assessment if required, proving income to mortgage lenders, and maintaining historical records.
Contact HMRC and request £251.55 refund, providing P60 as evidence.
If your payslip verification or P60 check reveals overpayment:
If you identify overpayment mid-year (e.g., you worked part-year then stopped, or your monthly checks show excessive deductions):
Easiest approach. Let the year finish, verify with P60, claim refund in May/June.
Contact HMRC explaining your situation. They might adjust your tax code to collect less going forward or issue refund immediately if you're no longer working.
Once you have your P60 (received by May 31):
Be prepared to explain your situation clearly and provide documentation. Most legitimate overpayment claims are approved without hassle.
Your payslip is a monthly financial report card. It shows exactly what you're earning, what's being deducted, and whether the student loan calculations are correct. Thirty seconds of monthly review can save hundreds of pounds:
Understanding your payslip isn't optional if you want to ensure you're not overpaying student loans by hundreds of pounds annually. The information is there, presented monthly, ready for you to check. All it requires is basic knowledge of how to read it and thirty seconds to verify the numbers.
Use our student loan calculator for monthly repayment verification, annual liability calculation, tax code checking, and overpayment identification.
UK Education Policy Specialist
With over 15 years of experience in UK education policy and student finance, Dr. Sharma founded Student Loan Calculator UK to help students navigate the complex world of student loans.