The UK income tax system: Full-time employment
If you are working in the UK, your UK tax contributions will be collected in different ways, depending on your circumstances.
If you're working in the UK, you pay UK tax on your wages through a system called PAYE (Pay As You Earn). Your employer uses this system to deduct Income Tax and National Insurance contributions from your wages before they pay you.
Gross and net salary: UK income tax deductions
The amount you earn before tax is deducted is your 'gross salary'. The amount you get after tax and National Insurance has been deducted is your 'net salary'. When you get a payslip, you'll see:
- the gross salary you've earned including any bonuses;
- how much Income Tax has been deducted;
- any National Insurance contributions that have been deducted;
- any student loan repayments, if relevant;
- your take home pay, or the net salary you've actually received.
As well as being taxed on your pay, you're also taxed on benefits your employer provides, such as a company car, fuel, a low interest loan or medical insurance.
You may also have to pay tax on tips you receive as part of your job.
UK Income Tax
Income Tax is your contribution to government spending on things like transport, health and education. How much you pay depends on how much you earn.
HM Revenue & Customs (HMRC) gives you a tax code, which you'll see on your payslip. Your employer uses your tax code to work out how much Income Tax to take off your wages through the PAYE system.
At the end of each tax year your employer will give you a form – your P60 end of year certificate – showing your total gross pay for the year and how much tax you've paid.
How you pay Income Tax
Income Tax is collected in different ways depending on the type of income and whether you're employed, self-employed or not working. The different ways Income Tax is collected include:
- PAYE (Pay As You Earn);
- Self Assessment;
- tax deducted 'at source' whereby tax is deducted from bank/building society interest before the interest is paid to you;
- in some cases, one-off payments.
If you're an employee or you receive a company or private pension, your employer or pension provider will deduct tax through PAYE. If you're self-employed, you'll be responsible for filling in a Self Assessment tax return and paying your own tax.
Paying the right amount of Income Tax
It's important to check that you're paying the right amount of tax. You can do this by checking your:
- total taxable income
- tax-free allowances and reliefs
- current tax code (if relevant)
If you're paying too much tax you can claim this money back. If you're an employee or you receive a company or personal pension and you think you're paying too little tax you'll need to contact HMRC to change your tax code.
National Insurance in the UK
As well as paying Income Tax on your income, you'll also have to pay National Insurance contributions. National Insurance contributions build up your entitlement to certain social security benefits, including the State Pension. The amount of National Insurance you pay depends on how much you earn and whether you're employed or self-employed. You stop paying National Insurance contributions when you reach retirement age.
To find your nearest tax office for more advice, use the locator.
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