Simple explanation of the United Kingdom tax system. No waffle just details and facts to help you better understand how your income taxes and national insurance payments are deducted.
The United Kingdom has a progressive tax system. The tax year in the UK begins on the 6th April each year and ends on the 5th April of the next year. You have a right to obtain your weekly/fortnightly/monthly payslips from your employer where all your taxable earnings should appear as well as any bonuses and overtime with relative income and national insurance deductions.
Until you reach your annual personal allowance (2012/13 £8,105) you do not pay any income tax. Thereafter, the progressive taxes are as follows:
Tax percentage on your yearly earnings
- £0 – £8,105 [0%]
- £8,105 – £34,370 [20%]
- £34,371 – £150,000 [40%]
- £150,001 and above [50%]
National Insurance Contributions
There is also an allowance you have to reach before you begin paying your National Insurance contributions which currently are 12% of your earnings.
This is a pretty good tax calculator where you can check out the daily/weekly/monthly/yearly taxes on the income you receive. For your convenience, it is even including your student loan repayment or any contributions made to the private pension schemes.
When you get a new job make sure you are under correct tax code so that the income tax and national insurance payments you made are deducted correctly.
P45, P46 and P60 forms a thoroughly explained in the Government website. However, I will still give you super brief description of each:
P45 – a form you get when you quit your job and you need pass it over to your new employer.
P46 – a form you and your new employer need to complete when you don’t have a P45 (you either did not work before, lost your P45 or you are planning to work at two different jobs at the same time). You will need your National Insurance Number for this so make sure you obtain it before you are completing this form.
P60 – a form you get everywhere which summarises your income received and all the taxes refunded. Make sure you apply for a tax refund if you have overpaid the tax. Check out the tax calculator to see whether you have or haven’t overpaid.
National Minimum Wage in the UK 2012/2013
From pay reference periods starting on or after 1 October 2012 there are four different National Minimum Wage (NMW) rates. NMW rates are usually updated in October each year. The rates that apply from 1 October 2012 are as follows:
- Main Rate for workers aged 21 years and over – £6.19 per hour.
- For workers aged 18 to 20 inclusive – £4.98 per hour.
- For workers aged under 18 (but above compulsory school leaving age) – £3.68 per hour.
- Rate for apprentices who are aged under 19 years or over 19 years and in the first year of their apprenticeship – £2.65 per hour.
These rates are likely to change from 1 October 2013.