In this part we’ll cover what happens to your taxes when you’re an employee in the UK, so let’s not waste any time and jump straight to it.
The first thing you need to know is that when you are ‘employed’ in the UK, your ‘employer’ will deduct your tax and National Insurance from your wages and pay it to HMRC on your behalf.
What do I need to be able to work in the UK?
To work in the UK you will either need a work permit (a working visa) unless you are a British citizen, a Swiss national or an EEA citizen. Before you start work you will need to get a National Insurance number. You need to apply for one (which you can do here). Your National Insurance number is important as it identifies you in the tax system.
PAYE stands for Pay As You Earn and it’s the system that is used to pay your taxes. Rather than paying for all your taxes in one go, you pay over the year in smaller amounts when you get paid every month. The thing with PAYE is that it is an estimate and it can change depending on your circumstance throughout the year. This means that what you pay might not be exactly what was due, it can be over or in some instances under. If you are one of the millions of UK taxpayers who ends up paying too much tax, you can claim a refund.
Some of the reasons that you might end up overpaying are:
- You work only part-way through the tax year
- You work on a casual basis and don’t necessarily receive the same pay every month
- You have more than one job in one year, or,
- You might be a student that only works during the holidays
So how much tax will I pay every month?
HMRC uses a special code to tell your employer what your tax-free personal allowance is so you can pay the correct amount of tax. You will be taxed on your pay and any expenses and benefits your employer may provide, such as medical or dental insurance or if you drive a company car. You might be able to claim some tax relief for some business expenses including:
- Travel and subsistence
- Uniforms or special work tools
- Costs incurred for working at home
To be able to claim you need to keep a record of your expenditure and pass them on to whoever in your company deals with expenses.
What if I leave my job?
If you decide to leave your job your employer must give you a P45 form. The P45 is a record of what you were paid and the tax that has been deducted up to the point you left. On the form it will show you:
- Your Tax code and PAYE reference number
- Your National Insurance number
- The leaving date
- How much you made that year, and
- How much tax was deducted from your earnings
It’s important that you keep your P45 safe as your new employer may ask to see it and if you do need to claim any overpaid tax HMRC will want to see it.
Photo credit: reynermedia