Employee tax and National Insurance

If you’re employed, you pay tax on your wages through a system called Pay As You Earn (PAYE). Your employer uses this system to deduct Income Tax and National Insurance contributions from your wages before you are paid.

On this page:

Gross and net salary

The amount you earn before tax and National Insurance are deducted is your 'gross salary'. The amount you receive after tax and National Insurance have 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 any tips you receive as part of your job.

Tax on company benefits

Tax and National Insurance on tips and bonuses

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Income Tax and PAYE

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.

HM Revenue & Customs (HMRC) gives 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 deduct from 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 and National Insurance you've paid.

Income Tax - the basics

Tax codes - the basics

Income Tax rates and thresholds

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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. If you earn over a certain amount, your employer deducts Class 1 National Insurance contributions from your wages through the PAYE system.

You pay a lower rate of National Insurance contributions if you’re a member of your employer’s ‘contracted-out’ pension scheme, or you’re a married woman - or widow - who holds a valid ‘election certificate’.

Your employer also pays employer National Insurance contributions based on your earnings and on any benefits you get with your job for example a company car.

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 - the basics

National Insurance contributions rates and thresholds

Paying reduced rate National Insurance contributions

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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 2014 to 2015 the Personal Allowance is £10,000. Some people can earn a bit more before they start paying tax, if they're born before 5 April 1948, for example.

There are a number of other allowances and reliefs you may be able to claim to reduce your tax bill - and in some cases mean you’ve no tax to pay. Follow the last two links below to find out more.

Personal Allowance - find out more

Introduction to tax allowances and reliefs

Tax allowances and reliefs - employees or directors

National Insurance

You can earn up to £153 a week (2014 to 2015) before you pay any National Insurance contributions. This is known as the 'primary threshold'.

However, as long as you earn more than £111 a week (2014 to 2015) you can still build up your entitlement to a State Pension and certain other benefits. This is known as the 'lower earnings limit'.

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Making sure you don’t overpay National Insurance

Avoiding overpayment if you have more than one job

You may be able to ‘defer’ some of your contributions to prevent an overpayment if both of the following apply:

  • you pay Class 1 National Insurance contributions with two or more different employers
  • you expect to pay contributions on weekly earnings of at least £805 in one job or £946 in two jobs throughout the tax year

To apply you can either complete form CA72A Application for deferment of payment of Class 1 National Insurance contributions, or write to:

HM Revenue & Customs
National Insurance Contributions & Employer Office
Deferment Services
Longbenton
Newcastle upon Tyne
NE98 1ZZ

The deadline for applying is 14 February in the relevant tax year.

Go to form CA72A Application for deferment of payment of Class 1 National Insurance contributions

Stopping contributions if you’ve reached State Pension age

If you are over State Pension age and carry on working you will need to provide your employer with proof of your age so that you don’t continue to pay National Insurance contributions unnecessarily. You can use a birth certificate or passport as proof of your age. To find out more read the HMRC guide ‘Making sure you’ve stopped paying National Insurance’.

Making sure you’ve stopped paying National Insurance

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Tax and National Insurance if you’re a director

You pay Income Tax on your earnings in the same way as other employees. However, your National Insurance contributions are worked out over an ‘annual earnings period’ - from 6 April to the following 5 April - rather than over the normal weekly or monthly periods that apply to other employees. This is to make sure you pay the right amount of National Insurance contributions.

Although your contributions are worked out over a different time period, your employer may be able to make special arrangements that allow you to pay them weekly or monthly like other employees.

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More useful links

Starting your first job: what to do about tax and National Insurance

Tax when starting, leaving or retiring from work

Tax and National Insurance if you’re both employed and self-employed

Tax if you’re employed and getting a pension

Claiming back overpaid National Insurance contributions

Reclaiming tax if you’ve overpaid through your job

Tax when coming to work in the UK

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