If you’re employed, your employer deducts your tax and National Insurance contributions from your income using the Pay As You Earn (PAYE) scheme.
HM Revenue and Customs gives you a tax code, which your employer uses to work out how much income tax to deduct from your salary.
National Insurance (NI)
You have to pay NI to contribute towards the state pension and other social security benefits. The amount you pay depends on your income.
How much do you have to pay?
It depends on your income. The basic rate of tax is currently 22%.
You can check the tax and NI rates on the Inland Revenue site.
Reduce your tax
You should arrange your finances so that you pay as little tax as possible.
Tax matters can seem complicated. But with a little know how and help from Inland Revenue, you can soon reduce the amount of tax you pay.
- Check your tax code - you can get a free booklet from the Inland Revenue called ‘Understanding your Tax Code’. This guide will help you understand your coding notice and check that your tax code includes the correct personal allowance.
- Claim your allowances - make sure you are using all relevant allowances. Find out from your local tax office or the Inland Revenue site.
Save tax efficiently
Review your savings and investments to make sure you are making the most of any tax free products and accounts, such as Individual Savings Accounts (ISAs) and certain National Savings products, including savings certificates and Premium Bonds.
Bank and building society accounts
Interest from bank and building society accounts has had basic rate income tax deducted when it’s paid to you (you will have to pay more tax if you’re a higher rate tax payer). If you don’t pay tax, you can ask for interest to be paid gross (before tax has been deducted) by filling in form R85, available from your bank or building society. You can reclaim tax already deducted by filling in form R40, available from your tax office.
Send your tax return on time
If you need to complete a tax return, make sure you do so before the deadline to avoid fines and penalties. The tax return is sent out in April each year and the deadline is either 30 September or 31 January the following year.
Working two jobs
If you have more than one job, you will get a special tax code that takes this into account. You are normally given a tax allowance on your main job and you pay the basic or higher rate on your second job.
Cash in hand work
It is illegal for an employer to pay you cash in hand without deducting income tax and NI. You will also lose your rights, such as holiday and sick pay.
You may also have to pay the tax and NI contributions yourself if you are caught.
Self employed
If you work for yourself then you need to figure out how much tax and NI to pay. You should start by registering as self employed. You are responsible for your own tax and will be able to claim some of your spending as business expenses that will be exempt of tax.
For more tax and national insurance advice visit the Inland Revenue site.