Basic stuff to know about your tax, national insurance, student loans and pensions...
In a hurry and don't have time to read all the info... then.
If your tax code ends with W1M1 click here.
To find out how to contact HMRC click here.
To jump to info about national insurance click here.
To jump to student loan info click here.
To jump to info about pension click here.
Tax Codes...
You pay National Insurance with your Income Tax. Your employer will take it from your wages before you get paid. Your payslip will show your contributions.
Your employer or pension provider uses your tax code to work out how much tax to take from your pay or pension. HM Revenue and Customs (HMRC) works out your tax code and sends it to your employer or pension provider. Usually a tax code is several numbers and a letter.
The Personal Allowance for most people born after 5 April 1948 is £10,000 - this translate to a tax code of 1000L which most people should have. This means you can earn £10000 a year, or £192.31 a week tax free.
The numbers in your tax code tell your employer or pension provider how much tax-free income you get in that tax year. This is dony by...
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HM Revenue and Customs works out your tax-free Personal Allowance.
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Income that you haven’t paid tax on (eg untaxed interest or part-time earnings) and the value of any benefits from your job (eg a company car) are added up.
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The income that you haven’t paid tax on is taken away from your allowances. What’s left is the tax-free income you’re allowed in a tax year.
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This amount is divided by 10 and added to the letter for your circumstances.
But what about the letter after your tax code, here's what it means.
0T: Your Personal Allowance has been used up, or you’ve started a new job and don’t have a form P45, or you didn’t give your new employer the details they need to give you a tax code.
L: You’re entitled to the basic tax-free Personal Allowance as mentioned above.
P: You were born between 6 April 1938 and 5 April 1948 and entitled to your full tax-free Personal Allowance.
Y: You were born before 6 April 1938 or over and entitled to your full tax-free Personal Allowance.
T: Your tax code includes other calculations to work out your Personal Allowance (eg it’s been reduced because your income is over specific limits).
BR: All your income from this job or pension is taxed at the 20% basic rate (usually used if you’ve got more than one job or pension or when you start your first job and your employer is waiting for a tax code).
D0: All your income from this job or pension is taxed at the 40% higher rate (usually used if you’ve got more than one job or pension).
D1: All your income from this job or pension is taxed at the 45% additional rate (usually used if you’ve got more than one job or pension).
NT: You’re not paying any tax on this income.
Tax codes with ‘K’ at the beginning mean that you have income that isn’t being taxed another way and it’s worth more than your tax-free allowance. For most people, this happens when you’re:
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paying tax you owe from a previous year through your wages or pension.
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getting State benefits that you need to pay tax on (like the State Pension).
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getting benefits from work that you must pay tax on (like a company car or health insurance).
Your employer or pension provider takes the tax due on the income that hasn’t been taxed from your wages or pension - even if another organisation is paying the untaxed income to you.
Employers and pension providers can’t take more than half your pre-tax wages or pension when using a K tax code.
If your tax code has ‘W1’ or ‘M1’ at the end!
W1 (week 1) and M1 (month 1) are emergency tax codes. This means your tax is based only on what you are paid in the current pay period, not the whole year.
Which code you get depends on whether you are paid weekly or monthly.
They appear at the end of your tax code, eg ‘1000L W1’ or ‘1000L M1’. You should contact HMRC asap and ask why this tax code is being applied in your circumstance and ask them to send a PAYE Coding Notice to your employer.
In the 2014 to 2015 tax year if you pay higher or additional rates
The tax year runs from 6 April of one year to 5 April of the following year.
If your taxable income is over £31,865, ie above your Personal Allowance, you pay tax at the following tax rates as follows.
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20% basic rate tax on the first £31,865
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40% higher rate tax on taxable income between £31,865 and £150,000
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45% additional rate tax on taxable income over £150,000
National Insurance...
You pay National Insurance contributions to qualify for certain benefits including the State Pension. You pay National Insurance if you’re:
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16 or over.
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an employee earning above £153 a week.
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self employed and making a profit over £5,885 a year (unless you get an exception from HMRC).
The exact amount you pay depends on:
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how much you earn.
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whether you’re employed or self-employed.
You may also want to pay voluntary contributions to make up for gaps in your National Insurance record. For example, you can have a gap because you weren’t working and didn’t get any state benefits.
If you’re employed, you stop paying Class 1 National Insurance when you reach the State Pension age.
You pay Class 1 National Insurance contributions at the following rates (applies for most PAYE workers)...
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12% on your weekly earnings between £153 and £805
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2% on any weekly earnings over £805
Student Loans...
When you start with a new employer you are normally asked to declared if you need to pay back a student loan. If you have not declared this, HMRC will instruct the employer to begin taking student loan decuctions from a certain date. The rate at which student loan's are paid back is 9%. If you have a 2nd job, this is not taken in to account, therefor you may be repaying two amounts of student loans via two employers depending on income.
Employee earnings threshold at which repayment of student loans begin are either.
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£16,910 per year.
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£1,409.16 per month.
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£325.19 per week.
Example of a weekly paid employee repaying a student loan.
Weekly paid employee. Earnings in the week £410 rounded down to the nearest £ below.
Amount of Student Loan deduction is £7 calculated as follows:
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Earnings in the week £410.00
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Deduct pay period threshold £325.19. i.e £410 - £325.19 = £84.81.
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Excess is £84.81
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Multiply excess £84.81 by 0.09 = £7.63
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Rounded down to £7.
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The amount repaid by the employee is £7.
Student loan repayments in error.
Employee claims never to have had a student loan.
The employer has to keep making deductions in line with the start notice from HMRC and must continue doing so unless HM Revenue and Customs (HMRC) tells the employer to stop.
Employee claims that they are repaying their student loan in error.
If the employer has received a Start Notice from HMRC i.e begin taking deductions from the employee, or if the employer has received a P45 Part 3 from the employees previous employer with a ‘Y’ in box 5 then, the employee should contact the Student Loans Company (SLC) if you feel the deductions are not due.
If the employer hasn't received either of these forms, they should continue to make deductions for the time being and the employer should contact the Employer Helpline.
If HMRC confirm that deductions should stop, they will write to the employer authorising them to stop making deductions and ask the employer to refund any deductions made from the employee.
Pensions...
So pretty soon all employers will have to put you the employee in to a pension scheme. Every employer with at least one member of staff now has new duties, including putting those who meet certain criteria into a workplace pension scheme and contributing towards it.
This is called automatic enrolment. It’s called this because it’s automatic for you the employee – you don’t have to do anything to be enrolled into a pension scheme.
Come talk to us in the accounts department if you have any pension queries.
Contacting HMRC ...
By Phone
Telephone:0300 200 3300.
Textphone:0300 200 3319.
Outside UK: +44 135 535 9022.
Opening times:
8am to 8pm, Monday to Friday
8am to 4pm Saturday
Closed Sundays and bank holidays
Best time to call:
Phone lines are less busy before 10am, Monday to Friday, and after 1pm
You should have your National Insurance number with you when you phone. Your National Insurance number and your Employers reference number should both be on your payslip.
By Post...
Pay As You Earn
HM Revenue And Customs
BX19 1AS
United Kingdom.
More HMRC info...
For more Income Tax information click here
For more National Insurance information click here.
For HMRC income tax enquires click here.
For HMRC home page click here.
For HMRC contact us page click here.
For HMRC FAQ's click here.
For Student loan info and repayment table click here.
Rates and Threshold Tables click here.
For the Student Loan Company click here.
For Pensions and Auto Enrolment information click here.