In this section:
- Tax for the employed
- Tax for the self-employed
- Work out if you're employed or self-employed
- Starting your first job: what to do about tax
- Tax on casual, part-time or temporary work
- PAYE forms: P45, P46, P60, P11D
- Tax on company cars and other benefits
- Tax on employee share schemes
- Tax on tips and bonuses
- Tax when employing people in your home
Tax for the employed
You pay tax on your wages through a system called PAYE (Pay As You Earn). Your employer uses this system to deduct Income Tax and National Insurance contributions from your wages before they pay you.
On this page:
- Gross and net salary
- Paying Income Tax
- Paying National Insurance contributions
- How much can you earn without paying tax and National Insurance?
- More useful links
Gross and net salary
The amount you earn before tax is deducted is your 'gross salary'. The amount you get after tax and National Insurance has been deducted is your 'net salary'. When you get a payslip, you'll see:
- the gross salary you've earned including any bonuses
- how much Income Tax has been deducted
- any National Insurance contributions that have been deducted
- any student loan repayments, if relevant
- your take home pay, or the net salary you've actually received
As well as being taxed on your pay, you're also taxed on benefits your employer provides, such as a company car, fuel, a low interest loan or medical insurance. You may also have to pay tax on tips you receive as part of your job.
Tax on company cars and other benefits
Paying Income Tax
Income Tax is your contribution to government spending on things like transport, health and education. How much you pay depends on how much you earn.
We give you a tax code, which you'll see on your payslip. Your employer uses your tax code to work out how much Income Tax to take off your wages through the PAYE system.
At the end of each tax year your employer will give you a form - your P60 End of year certificate - showing your total gross pay for the year and how much tax you've paid.
Paying National Insurance contributions
You pay National Insurance contributions to build up your entitlement to a State Pension and other social security benefits. How much you pay depends on how much you earn. Your employer deducts Class 1 National Insurance contributions from your wages through the PAYE system.
HM Revenue & Customs (HMRC) keeps track of your contributions through your National Insurance number. This is like an account number and is unique to you.
National Insurance contributions - more from the Directgov website
How much can you earn without paying tax and National Insurance?
Income Tax
Everyone can earn a certain amount each year without paying any Income Tax. This is called your Personal Allowance. In 2009-10 the Personal Allowance is £6,475. Some people can earn a bit more before they start paying tax, if they're over 65, for example.
National Insurance
You can earn up to £110 a week (2009-10) before you pay any National Insurance contributions. This is known as the 'primary threshold'.
As long as you earn more than £95 a week (2009-10) you can still build up your entitlement to a State Pension and certain other benefits. This is known as the 'lower earnings limit'.
More useful links
Starting your first job: what to do about tax
