Payroll Glossary

A – D

Attachment of Earnings Order (AEO)

A court order requiring an employer to deduct money from an employee’s pay to repay a debt such as council tax arrears, court fines, or child maintenance. See Attachment of Earnings Orders.

Auto-Enrolment

The legal requirement for employers to automatically enrol eligible workers into a qualifying workplace pension scheme and contribute at least 3% of qualifying earnings. See Pension Auto-Enrolment Deductions.

Basic PAYE Tools (BPT)

Free HMRC software that allows employers with fewer than 10 employees to run their payroll and submit RTI returns. It provides basic payroll calculations and filing but lacks the features of commercial payroll software.

Benefit in Kind (BIK)

A non-cash benefit provided to an employee or director that has a monetary value and is subject to Income Tax and, usually, Class 1A NIC. Examples include company cars, private medical insurance, and interest-free loans. See P11D & Benefits in Kind.

BR (Basic Rate) Tax Code

A tax code that tells the employer to tax all of the employee’s pay at the basic rate (20%) with no Personal Allowance. Used when the allowance is allocated to another job. See Common Tax Codes Explained.

Class 1 National Insurance

National Insurance contributions paid by employees (primary contributions) and employers (secondary contributions) on earnings from employment. The primary rate is 8% between the Primary Threshold and Upper Earnings Limit in 2026/27; the secondary rate is 15% above the Secondary Threshold.

Class 1A National Insurance

Employer-only NIC charged at 15% on the value of most benefits in kind. Paid annually by 22 July following the end of the tax year.

Cumulative Tax Basis

The standard method of calculating PAYE tax, where the employer considers all earnings and tax-free allowances from the start of the tax year to date. Over- or under-deductions in earlier periods are automatically corrected. See Cumulative vs Week 1 / Month 1.

Deduction from Earnings Order (DEO)

An instruction from the Child Maintenance Service requiring an employer to deduct child maintenance payments from an employee’s pay. Takes priority over most other non-statutory deductions.

E – H

Employment Allowance

An annual reduction in an employer’s Class 1 secondary NIC liability. Worth up to £10,500 in 2026/27. Claimed through the EPS.^[1]

Employer Payment Summary (EPS)

An RTI submission used to report adjustments to an employer’s PAYE liability, including statutory payment recoveries, Employment Allowance claims, CIS deductions suffered, and nil-payment months. See Employer Payment Summary (EPS).

Earlier Year Update (EYU)

A submission to correct payroll data for a previous tax year. Used for years before 2020/21. For 2020/21 onwards, corrections are made via supplementary FPS. See Earlier Year Updates (EYU).

Full Payment Submission (FPS)

The main RTI return, submitted to HMRC on or before each pay date. Contains details of every employee paid, including their year-to-date pay, tax, NI, and student loan deductions. See Full Payment Submission (FPS).

Gross Pay

The total amount an employee earns before any deductions (tax, NI, pension, etc.) are taken. Includes basic pay, overtime, bonuses, commission, and statutory payments.

I – L

Keeping in Touch (KIT) Days

Up to 10 days during maternity, adoption, or shared parental leave when the employee can work without ending their leave or losing statutory pay for that week.

Lower Earnings Limit (LEL)

The minimum level of earnings at which an employee qualifies for National Insurance benefits (such as the State Pension) even though no NI is actually paid. Set at £129 per week (£6,708/year) in 2026/27. Also the minimum earnings threshold for statutory payment eligibility.

M – P

Net Pay

The amount the employee takes home after all deductions have been made from their gross pay. Also called “take-home pay.”

NI Category Letter

A letter (A, B, C, H, J, M, V, Z, etc.) that determines the rate of NI contributions for an employee. Category A is the standard letter for most employees. Other categories apply to specific groups such as married women with reduced rates (B), employees above State Pension age (C), and apprentices under 25 (H).^[3]

P11D

The form used to report taxable benefits in kind and expenses to HMRC after the end of each tax year. Due by 6 July. See P11D & Benefits in Kind.

P45

A four-part document issued to an employee when they leave employment, showing their tax code and year-to-date pay and tax figures. See The P45 Process.

P60

An end-of-year certificate issued to all employees on the payroll on 5 April, summarising their total pay and deductions for the tax year. Due by 31 May. See P60 Explained.

PAYE (Pay As You Earn)

The system used by HMRC to collect Income Tax and National Insurance from employees’ wages before they are paid. Operated by the employer on behalf of HMRC. See What Is PAYE?

PAYE Reference Number

A unique reference assigned to each employer by HMRC when they register for PAYE. Consists of a 3-digit tax office number and an employer reference (e.g. 123/AB45678). See PAYE Reference Numbers & Accounts Office.

Payrolling (Benefits)

Taxing benefits in kind through the payroll in real time, rather than reporting them on a P11D at year end. Employers must register with HMRC to payroll benefits. Mandatory for most benefits from April 2026.

Personal Allowance

The amount of income an individual can earn each tax year before Income Tax is charged. Set at £12,570 for 2026/27. Reduced by £1 for every £2 of income above £100,000.^[2]

PILON (Payment in Lieu of Notice)

A lump sum payment made to an employee instead of requiring them to work their notice period. Tax treatment depends on whether the employment contract contains a PILON clause. See Calculating Final Pay (Leavers).

Primary Threshold (PT)

The earnings level above which employees start paying Class 1 NIC. Set at £242 per week (£12,570/year) in 2026/27.

Q – T

Qualifying Days

The days on which Statutory Sick Pay can be paid — normally the days the employee is contracted to work. SSP is calculated based on qualifying days, not calendar days.

Real Time Information (RTI)

The system under which employers report payroll information to HMRC electronically each time employees are paid, using the FPS and EPS. Introduced in 2013. See Real Time Information (RTI) Overview.

SAP (Statutory Adoption Pay)

A statutory payment to eligible employees who adopt a child. Paid at 90% of average earnings for 6 weeks, then £194.32/week for 33 weeks. See Statutory Adoption Pay (SAP).

Secondary Threshold (ST)

The earnings level above which employers start paying Class 1 secondary NIC. Reduced to £96 per week (£5,000/year) from April 2025.

ShPP (Shared Parental Pay)

A statutory payment allowing eligible parents to share up to 37 weeks of pay after birth or adoption. Paid at £194.32/week (or 90% of earnings if lower). See Shared Parental Pay (ShPP).

SMP (Statutory Maternity Pay)

A statutory payment to eligible pregnant employees. Paid at 90% of average earnings for 6 weeks, then £194.32/week for 33 weeks. See Statutory Maternity Pay (SMP).

SPP (Statutory Paternity Pay)

A statutory payment to eligible employees taking paternity leave. Paid at £194.32/week (or 90% of earnings if lower) for up to 2 weeks. See Statutory Paternity Pay (SPP).

SSP (Statutory Sick Pay)

A statutory payment to eligible employees who are off sick. Paid at the lower of £123.25/week or 80% of average weekly earnings, from the first day of sickness, for up to 28 weeks. See Statutory Sick Pay (SSP).

Starter Checklist

A form completed by new employees who do not have a P45. Contains three statements (A, B, C) that determine the starter tax code. Replaced the P46 form in 2013. See Starter Checklists (New Employee Without P45).

Student Loan Deduction

A repayment towards an employee’s student loan, deducted from pay at 9% of earnings above the plan threshold (or 6% for postgraduate loans). See Statutory Deductions (Tax, NI, Student Loan).

Tax Code

A code issued by HMRC that tells the employer how much tax-free pay to allocate to an employee before deducting tax. The standard code for 2026/27 is 1257L. See How Tax Codes Work.

Tax Month

A monthly period used for PAYE purposes, running from the 6th of one calendar month to the 5th of the next. Tax month 1 is 6 April to 5 May.

Tax Week

A weekly period used for PAYE purposes. Tax week 1 starts on 6 April. There are 52 complete tax weeks in a year (with a final short period, week 53, in some years).

U – Z

Upper Earnings Limit (UEL)

The earnings level above which the employee NI rate drops from 8% to 2%. Set at £967 per week (£50,270/year) in 2026/27. There is no upper limit for employer NI.

Week 1 / Month 1 (Non-Cumulative) Basis

A tax calculation method where each pay period is treated independently, with no reference to previous periods in the tax year. Used for emergency tax codes and certain starter situations. See Cumulative vs Week 1 / Month 1.

Week 53

An extra tax week that occurs in some tax years when the regular pay date falls 53 times. Employers must follow specific rules for calculating tax in week 53 to avoid over-deduction.

Further Reading

• What Is PAYE? — an introduction to the PAYE system
• PAYE Thresholds & Rates 2026/27 — all the numbers behind the terms
• How PAYE Works (Employer Obligations) — a comprehensive guide to employer duties
• Key Payroll Dates Calendar — all deadlines for the current tax year