Statutory deductions in the United Kingdom, explained
Reviewed by Mellow Editorial Team, HR & payroll content team
Statutory deductions are amounts an employer is legally required to take from an employee's gross pay and pass on to the relevant authority. They are not optional, and getting them wrong — whether underpaying or over-deducting — creates liability for the employer.
What counts as a statutory deduction
In the UK, three main deductions are statutory:
- Income tax — collected under PAYE (Pay As You Earn) on behalf of HMRC
- Employee National Insurance contributions (NICs) — deducted at source and paid to HMRC alongside employer NICs
- Student loan repayments — where HMRC has issued a Start Notice (SL1)
Pension contributions under auto-enrolment sit in a slightly different category. They are a legal obligation but paid to a pension scheme rather than HMRC, and they involve both an employer and an employee contribution. They are covered below.
Court orders — such as an Attachment of Earnings Order — can also require deductions, but these arise from individual circumstances rather than universal statute.
How income tax deductions work
Every employee has a tax code, issued by HMRC, which tells you how much of their income is tax-free. For most employees in 2026/27, the standard tax code reflects the personal allowance of £12,570. Earnings above that threshold are taxed at:
- 20% on income within the basic-rate band
- 40% on income in the higher-rate band
- 45% on income above the additional-rate threshold
You apply the tax code to calculate the correct amount to deduct each pay period. HMRC's PAYE system does the maths if you are using compliant payroll software — you should not be doing this manually. If an employee has no tax code yet (for example, a new starter who has not provided a P45), you use the emergency tax code or a starter declaration to determine the correct basis until HMRC issues a code.
How National Insurance deductions work
National Insurance is calculated separately from income tax. For the current tax year, employee NICs on a standard category A employment are charged at 8% on earnings between the primary threshold and the upper earnings limit, then 2% on earnings above the upper earnings limit.
As the employer, you also pay employer NICs at 13.8% on earnings above the secondary threshold. This is your own cost — it is not deducted from the employee's pay — but it is part of the same payment to HMRC and must be calculated and remitted alongside the employee deduction.
Both figures are calculated on gross earnings in each pay period, not cumulatively across the year in the way income tax is. Payroll software handles this automatically once the employee's category is set correctly.
Auto-enrolment pension contributions
Under auto-enrolment, eligible employees must be enrolled into a qualifying workplace pension scheme. The minimum contributions in 2026/27 are:
- Employer: 3% of qualifying earnings
- Employee: 5% of qualifying earnings
Qualifying earnings are a defined band of annual pay — not total gross pay. You deduct the employee's 5% from their net or gross pay (depending on whether your scheme operates relief at source or net pay arrangement) and add your own 3% before paying the combined amount to the pension provider.
Employees can opt out, but you cannot encourage them to do so, and you must re-enrol eligible employees every three years.
Reporting and paying what you owe
All statutory deductions must be reported to HMRC in real time. Under Real Time Information (RTI), you submit a Full Payment Submission (FPS) on or before every payday. This tells HMRC exactly what each employee was paid, what tax and NI was deducted, and what you as the employer owe.
Payment of the combined income tax, employee NICs and employer NICs is due to HMRC by the 19th of the following month (or 22nd for electronic payment). Most small employers pay monthly; larger employers pay more frequently.
At year end:
- Issue a P60 to every employee still in your employment by 31 May
- Submit a P11D (or P11D(b)) by 6 July if you have provided taxable benefits in kind
Missing these deadlines or submitting inaccurate figures attracts penalties. HMRC can also issue a notice of underpayment if their records do not match your FPS submissions.
What changes with the Employment Rights Act 2025
The Employment Rights Act 2025 strengthens day-one rights for employees, which has payroll implications. More workers may qualify for statutory payments — including Statutory Sick Pay and family-leave pay — from their first day of employment, with less reliance on qualifying periods. Employers need to make sure their payroll processes account for this broader eligibility, particularly when onboarding new starters, rather than assuming entitlements only kick in after a probationary period.
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