Taxes in UK/Britain/England/London: income tax & national insurance

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Issues after you have found a job in the UK


Sections	Introduction
	National Insurance (NI)
	Income tax
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INTRODUCTION

This section will tell you about some of the practical issues which you will need to consider after you have started working in the UK. To work legally you need the correct type of visa, and you need to be paying taxes on your earnings (both National Insurance and income tax).

HM Revenue & Customs is the government organisation responsible for taxation (the section which is responsible for personal tax issues was previously known as the Inland Revenue).

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NATIONAL INSURANCE

National Insurance (NI) is a tax which is taken from pay for the UK's health and social security system. Your payments are known as National Insurance contributions (NICs). Most people working in the UK need to pay this: there are a few exceptions (for example, if you are from an EEA country with a reciprical agreement with the UK and you continue to pay National Insurance in your home country).

In the 2008/9 tax year (for income earned between April 6th 2008 and April 5th 2009), the National Insurance tax rate paid by workers is:
0% for the first £105 per week
11% on income up to £770 per week
1% on any income above £770 per week
The tax is paid each time you are paid (usually weekly or monthly). Unlike income tax, it does not matter how much you have earned in other pay periods, and the tax cannot be reclaimed (unless a mistake has been made).

Employee's class 1 National Insurance	2006/7	2007/8	2008/9
Primary threshold (weekly income before tax)	£97	£100	£105
Upper earnings limit (weekly income before tax)	£645	£670	£770
Employee's class 1 NI rate below primary threshold	0%	0%	0%
Rate between primary threshold & upper earnings limit	11%	11%	11%
Rate above upper earnings limit	1%	1%	1%

After you have been offered a job in the UK for the first time, you will need to obtain a National Insurance (NI) number (this is two letters followed by a 6-digit number and a final letter). If your employer has a computerised payroll (payment system), a temporary National Insurance number is sometimes used to allow the computer to work, but this is not a real number and you must still apply for a permanent National Insurance number. Your employer or an adviser at a Job Centre can tell you which telephone number you need to call. You will be asked to give some personal details, including the address and telephone number of your workplace and of your accommodation, and you will need to make an appointment at the correct local office of the Department of Work and Pensions (formerly known as the Benefit Agency). At the office you will be asked to complete an application form and there will be a brief interview. You will be expected to take two types of identity with you to prove your name, UK address and date of birth: usually a passport and a letter from your employer (containing your name and address and confirming that you have a job offer). After your interview, it may take one or two months (or sometimes longer) before you are issued with your National Insurance number. When you have received your number you should tell your employer.

Further information

Applying for a National Insurance number: http://www.dwp.gov.uk/lifeevent/benefits/ni_number.asp
Finding your nearest Job Centre: http://www.jobcentreplus.gov.uk/cms.asp?Page=/Home/AboutUs/OurOffices
HM Revenue & Customs: http://www.hmrc.gov.uk/nic
National Insurance Helpline: (0845) 302 1487

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INCOME TAX

If you work in the UK, you will have to pay income tax. This tax is collected by the government department known as HM Revenue & Customs (previously known as the Inland Revenue). Tax is paid based on your income during the tax year, which starts on April 6th and ends on April 5th in the following year.

In the 2008/9 tax year (for income earned between April 6th 2008 and April 5th 2009), the income tax bands are as follows:
0% on the first £5,435 (your personal allowance, equivalent to about £105 per week, or £453 per month)
(you will only be entitled to a part of this allowance if you are not resident in the UK during the whole tax year)
20% (the basic rate) on the next £36,000 (equivalent to about £692 per week, or £3,000 per month)
40% (the higher rate) on any income above this
The table below shows how these tax rates and allowances have changed in recent years:

Key income tax bands and allowances	2006/7	2007/8	2008/9
Personal allowance	£5,035 @ 0%	£5,225 @ 0%	£5,435 @ 0%
Lower rate tax	£2,150 @ 10%	£2,230 @ 10%	-
Basic rate tax	£31,150 @ 22%	£32,370 @ 22%	£36,000 @ 20%
Higher rate tax	@ 40%	@ 40%	@ 40%

Pay-as-you-earn (PAYE)

You normally have to pay tax each time you are paid by your employer. This system is known as pay-as-you-earn (or PAYE). You may be sent a PAYE Coding Notice which shows your tax code, which is is used by your employer's pay system to calculate how much tax you pay (it will show your personal allowance, which is the amount you can earn during a tax year without paying any tax, and it may show the value of some benefits from your employer on which tax is payable).

At the end of the tax year (some time after 5 April), you should receive a P60 (End of Year Certificate) from your employer. This shows how much you have earned during the year and how much tax you have paid on these earnings.

Soon after you have left you should be sent a form P45 by your employer. You will need to keep this and give it to your next employer if you start another job.

If you are a full-time student working only during the holiday periods (summer, Christmas and Easter) and you expect to earn less than the personal allowance during the whole of the next tax year (until April 5 next year) and you intend to continue studying until after April 5 next year, you may be able to receive your wages without tax being deducted. You will need to complete a student exemption form P38(S)

Tax reclaim

You may believe that you have paid more tax than you need. For example, this may happen if:
- you did not have a National Insurance number, or did not tell the number to your employer
- your total taxable income in a tax year is less than your personal allowance
- you left your job before the end of the tax year and stopped working in the UK after this

To apply for a tax refund ask your Tax Office for a tax repayment claim form (P50).

Further information

For more information about tax in the UK see the HM Revenue & Customs site: http://www.hmrc.gov.uk.
There is a special section for students: http://www.hmrc.gov.uk/students.
P50 form: http://www.hmrc.gov.uk/payetaxpayers/fagp50.shtml
Student tax checker: http://stccalculator.inlandrevenue.gov.uk
Tax calculator (shows take home pay after tax and national insurance, assuming you work): http://www.thesalarycalculator.co.uk

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