3. Deductions

Your payroll software will calculate how much tax and National Insurance to deduct from your employees’ pay. These deductions are worked out using each employee’s tax code and National Insurance category letter.

You may also need to deduct student loan repayments, pension contributions, Payroll Giving donations and child maintenance payments.

Student loan repayments

Use your payroll software to:

  • record if your employee needs to make student loan repayments - both in your software and on payslips
  • calculate and deduct how much they need to repay (9% of their income above £17,335 a year)


Make pension deductions after you take off National Insurance. You normally make pension deductions before you take off tax - check with your workplace pension provider.

You’ll also need to pay any employer contributions into your employee’s pension.

A new law means all employers will have to provide and pay into a workplace pension scheme for their employees - this is called ‘automatic enrolment’.

Payroll Giving

With a Payroll Giving scheme, your employees can donate to charity directly from their pay before tax is deducted.

Register with a Payroll Giving agency to set up a scheme. They’ll let you know how to make deductions.

As well as the usual payroll records, you must also keep the agency contract, employee authorisation forms and details of payments to the agency.

Child maintenance

You may need to deduct child maintenance directly from a paying parent’s earnings or pension.