Understanding Income Tax and National Insurance
No one enjoys paying it, but
income tax is a fact of life if you earn more than your personal allowance each year.
Receiving your first payslip from a new employer is always a high point, but you should take the time to make sure your
tax code is correct. This code is applied to your earnings to ensure you are paying the right amount of tax. Pay too much and you will receive a welcome rebate. Pay too little and you will be faced with a bill for the amount of tax you owe. That’s why it’s worth making sure your employer gets it right from the start.
Look for the BR codeIf you see the letters
BR where your tax code should be, you should contact your
local tax office for advice, as this means you are paying basic rate tax on all your earnings. This can sometimes happen when you start a new job – especially if you have not been able to
provide them with a P45. They will normally issue you with a new tax coding notice and amend the tax code for you. This can result in a rebate, which will often appear directly on your payslip.
If you are in any doubt about whether your tax code is correct, call your local tax office for advice.
National Insurance contributionsThese will automatically be deducted from your wages provided you are:
• Under pensionable age
• Earning more than the agreed threshold (currently £100 weekly)
These
national insurance contributions help to build up your entitlement to the
state pension and several other benefits currently offered by the Government. Your employer will ask you for your
National Insurance number before you start work, so that your contributions can be deducted from your earnings.
Changes in circumstancesYou won’t always stay on the same tax code and pay the same percentage of National Insurance in each pay period. If you marry, retire or work less hours, for example, you may find you pay more or less tax - or even none at all.
It is important that you contact your tax office whenever your circumstances change, so they can make sure your details are up to date and your payments are correct.
Some people find anything to do with tax and National Insurance quite daunting, but if you stay informed and ask your tax office for advice when you need it, they are only too happy to help.
