A practical glossary for salary planning and offer comparisons. Definitions are written for employees using PAYE in the UK.
PAYE is the payroll system used to deduct income tax from employee earnings throughout the year. Employers calculate tax each pay period using your tax code and HMRC rules.
The amount of income you can earn before paying income tax, subject to taper rules at higher incomes. It is one of the biggest drivers of effective tax outcomes.
The tax rate applied to your next pound of income. It is not the same as your overall effective deduction rate and is best used for pay-rise planning.
Total annual deductions divided by gross annual salary. This rate helps with budgeting because it reflects the full deduction burden across all components.
A payroll arrangement where part of salary is exchanged before tax and NI calculations, often for pension contributions. It can improve net-pay efficiency depending on employer setup.
A separate deduction from income tax with its own thresholds and rates. NI calculations can differ from tax-band intuition, especially around threshold boundaries.
Repayment rules vary by plan threshold and rate. Correct plan selection is critical for realistic monthly net-pay estimates.
A code used by payroll to apply allowances and adjustments. If your tax code is wrong, your net pay estimate and payslip can diverge materially.