Students: This is my first job since leaving school. What do I do about my Tax affairs

When you leave school and start work for the first time your employer will ask you to complete a form P46 (PDF 59K). This is so the employer can deduct the correct amount of tax from your pay.

Income tax
Once he has your P46, your new employer will be able to check whether you should pay tax. If you should, your employer will start to deduct tax from your wages. This system of taking tax directly from your pay is called Pay As You Earn (PAYE).

A tax year begins on 6 April one year and finishes on the 5 April the following year. In each tax year you can receive a certain amount of income free from tax. This amount is called the Personal Allowance. In the tax year 2006/2007 the Personal Allowance is £5,035.

Normally under the PAYE system the Personal Allowance is divided by the total number of pay days you will have in the tax year. So:

• if you are paid monthly, the allowance is divided by 12 (£5,035 divided by 12 months = £420 a month)
  
• if you are paid weekly, the allowance is divided by 52 (£5,035 divided by 52 weeks = £97 a week).

So, if you are paid monthly your employer will not deduct tax from the first £420 you earn each month.

If you are paid weekly your employer will not deduct tax from the first £97 you earn each week.

If you earn enough to pay tax on your wages, you will also pay National Insurance contributions (NICs). Your employer deducts these from your pay along with your tax.

National Insurance
You must give your National Insurance number to your employer when you start work. Your employer is responsible for collecting NICs from your wages.