Understanding the UK Tax System

It may appear to be a difficult subject to understand. The Adult working population in the UK has to pay Tax and National Insurance here is a brief guide to some of the terms used. Want to check how much you will earn after TAX? See the PAYE Calculator and find out how different contracting can be. The most important factor for new arrivals to the UK is the National Insurance number, you will have to apply for one once you start working.

Personal Tax Code

• A tax code indicates the amount of free tax a person is entitled to earn in each tax year (commences 6th April).
• This code is specific to each individual person.

Personal Income Tax

• All employees are liable to pay a tax on their earnings.
• These taxes are graded for various income ranges.

P45

• You will receive this document when you leave a company a copy should be given to your new company.
• In this way any earnings, under/over payment of tax can be carried on and your personal details are used.

P60

• You will receive this document at the end of the tax year – 5 April – and it will give you the amount of money you have earned and tax paid during that tax year.
• This document is very important and you must retain it as your record of your tax deductions.
• If you work for three companies in parallel you must receive three documents.

National Insurance Number

• This number is a requirement as it is your personal individual registration number and it is the number of where any national insurance is allocated.
• All employees need this number and ultimately it will determine the level of benefits and retirement pension you may earn. It is also a quick method of refunding any monies that you may claim when you leave the country.

National Insurance

• This deduction is a proportion of your salary. You will have to pay Employee National Insurance and if you are working as contractor you will be liable also for the Employer National Insurance.
• This money is deducted to pay into a fund (under your NI Number) to build up your benefits, pension as well as for the National Health Service.
• You need to apply for an NI card just prior to starting work and this can be done through your local Jobcentre Plus offices.

VAT - Value Added Tax

• This tax is controlled and collected by the HM Revenue and Customs department.
• It is a sales tax allocated to the majority of our purchases.
• For up to date information on this difficult and changing subject visit click here