In the UK when you start working you will have to pay income tax known as Pay As You Earn (PAYE). The more you earn the higher the income tax. PAYE applies to you if:
- You are earning from full and/or part-time work. You will not have to pay tax if you are earning £4,615 per annum or less.
- You have any extra earnings besides your main job. For instance, you might have a bar job in the evenings. The monies made from this will be taxed including any tips you make.
- You make any profit from a business – this also includes dividends from shares
- You claim Jobseekers Allowance.
- You are a landlord and receive rent from letting rooms in a house or flat.
- You receive interest from banks, national savings or building society accounts.
Your employer will deduct the appropriate level of PAYE tax directly from your pay. If you are self-employed or a freelancer that works for large businesses, the payroll department will deduct the appropriate PAYE taxes and National Insurance.
However, if you receive monies directly from individuals or smaller companies you are responsible for your own tax. At the end of each tax year – April to April – you will need to fill in a self-assessment form. You can either get an accountant to work it out for you or ask the tax office to calculate it by filling in your details online at www.gateway.gov.uk or returning by post to the tax office.
You will then receive a tax bill, which you can pay in January. If you fail to do so, or you miss the deadline you could face a fine.
Extra allowances are given in some circumstances, for instance if you are a single parent or receiving disability funding. For more information or to find out whether you are eligible visit www.hmrc.gov.uk.
National Insurance Contributions or NIC is deducted from your income and goes towards your state pension. The amount you pay is normally deducted from your wages along with PAYE tax.
Always find out from your employer if they offer a pension scheme. It is recommended that you contribute to this as soon as possible.
Your NIC counts towards a state pension but this won’t be a huge amount. By making further contributions into a pension fund set up by an employer you can invest towards your retirement.
In some cases employers will also make a contribution to your pension plan.
VAT (Value Added Tax)
Mainly aimed at larger companies and businesses VAT is charged if your taxable income reaches a set limit. To receive a VAT number you will have to register. For more information visit http://www.hmce.gov.uk/.
If you are in full time education or a student you will not have to pay tax. If you have a job during holidays, you can complete a P38 (S) and your employer will pay you without deducting tax.
If you are taxed you may be able to claim the monies back. For more information, contact your local tax office.
Who can help?
If you have any questions about tax there are a number of organisations that can help you.
If you are self-employed and need help with how to manage your accounts phone the self-employed helpline on 08459 15 45 15
If you have any tax problems or you are unsure about how tax works contact your local tax office, talk to your employer or contact Tax Aid, a charity that operates a free independent advice service on 0207 624 3768, (lines are open 10am -12 noon, Mon- Thurs) or visit www.taxaid.org.uk.
‘This is Money News’ is a website covering all aspects of paying tax. Website: www.thisismoney.com/taxes.html.