Tax and National Insurance

When you start work you’ll usually pay income tax and national insurance (NI) out of your wages. Your employer will deduct these before paying you, and must give you a payslip showing what has been deducted. Your earnings before tax is called your ‘gross’ pay. Your pay after deductions is called your ‘net’ or take-home pay.

You can earn a certain amount of money before you start paying tax – called your ‘personal allowance’. For most people this is £11,500 in the 12 months from April 2017 to March 2018 (the current ‘tax year’). Your employer will need to know your ‘tax code’, so that they know what your personal allowance is and how much tax (if any) to deduct from your wages. For most people with only one job their tax code is currently ‘1150L’ and should be written on your wage slip each time.

Your personal allowance is split over 12 months, or 52 weeks, depending on how you are paid. This means you can earn approximately £958 per month or £221 per week tax free. Any money you earn over this allowance will be taxed at 20%. National Insurance is also deducted from your pay, at 12% on earnings above £157 per week.

When you have finished working for an employer they should give you a P45. If you haven’t given your new employer your P45 from your last job (or benefit claim) they might not know your tax code and you may be paying too much tax.

If you have more than one job, find out about splitting your tax code between employers to minimise the amount of tax you pay. If you overpay tax, you should get a refund at the end of the tax year, though may be able to get it back sooner.

More information at – (‘income tax rates and personal allowances’).