Being an employee, you pay Income Tax and National Insurance on your earnings through the PAYE system. You must make sure about having the right tax code and paying the exact amount.
For an employee, it is important to understand the tax structure, as an imprecise understanding of the structure can lead to the usage of wrong tax code and tax payment and National Insurance. Each employee pays income tax and National Insurance (NI) on the wages through the pay-as-you-earn system (PAYE) system. At the same time, it is not viable to expect owner managed businesses to have an exhaustive knowledge of the tax structure and National Insurance rules. DNS Accountants, with years of experience, can help businesses with their tax planning and computation of tax and National Insurance (NI) contributions.
Self-employed individuals pay income tax on business profits and after a self assessment tax return is filed, tax is due on profits generated during the prior 12-month accounting period. The self assessment tax return must be completed each year. Individuals must also pay Class 2 NICs and Class 4 NICs. For 2019-2020, Class 2 NICs works upto a flat-rate of £3 per week if your profits are £6,365 or more a year which is collected by means of self-assessment. Class 4 NICs are linked to profits and for 2019-2020, the lower and upper limits are is £8,632, and £50,000 respectively.
Tax Rate* | Income after allowances 2019 to 2020 | Income after allowances 2018 to 2019 |
---|---|---|
Basic tax rate (20%) |
Up to £37,500 |
Up to £34,500 |
Higher tax rate (40%) |
£37,501 to £150,000 |
£34,501 to £150,000 |
Additional tax rate (45%) |
Over £150,000 |
Over £150,000 |
*These rates are applied after the tax free allowance has been deducted from the gross wage
For instance, if your yearly earning is £52,000, you pay:
On the first £12,500 you don’t need to pay anything
On the next £37,500 you have to pay 20% (££7,500.00)
On the next £2,000 you’re required to pay 40% (£800)
The National Insurance pay depends on the employment status and the amount an individual earns. Individuals will end up paying less if she is a married woman or widow along with a legitimate “certificate of election”; or he / she is rescheduling NI because of multiple jobs. For 2016-2017, the Class 1 NIC rates are as follows:
For 2019-2020, the Class 1 NIC rates are as follows: -
Individual’s pay | Class 1 NI rate |
---|---|
£155 – £827 for a week |
12% |
Greater than £962 per week |
2% |
The tax payable depends on an individual’s income and the amount of tax paid during the year. Tax codes depend on an individual’s circumstance and vary from people to people. Each year the HMRC sends a notice with information regarding tax code and the amount of tax paid. Tax code can also be found on the pay-slip. The tax code comprises of numbers and letters. The tax code is usually the tax-exempt amount an individual can earn which is divided by 10, with a post-fixed alphabet. For a better understanding, assume that the tax code is 1250L, which means 1250 turns into £12,500 earned before tax.
Sometimes the tax code isn’t right. Individuals who are on a new / first job and their correct tax code has not been mapped before the first pay-day, might be on an ‘emergency tax code’. This means an employee will be given a Personal Allowance that may not be the correct one. To make sure if the tax code is correct, match the tax code with the personal allowance an individual is getting. For any doubt regarding the tax code, please contact HMRC or specialized tax professional like DNS Accountant to resolve the tax issue.
Employers usually deduct the National Insurance from the wage and it is paid with taxes. The National Insurance (NI) contribution is shown on the pay-slip. A director of a limited company might be an employee of the company and is liable to pay Class 1 NI through PAYE payroll. Let’s understand certain circumstances:
Tax is payable if income is greater than the personal allowance in a year. The employer takes out the tax amount before giving the pay. The employer computes the tax through the pay-as-you-earn system.
Employer will also deduct National Insurance from the pay. National Insurance (NI) is computed on a weekly or monthly basis, or however frequently the employee is paid.
The amount of money individual earns is referred to as the gross pay. The amount left after subtracting deductions like NI and tax is the Net pay. As an employee, individuals are liable to pay:
For instance, in case you’re earning £1,000 per week, you pay:
To understand how much tax is due in the United Kingdom, let’s consider an example to understand the concept better.
Let’s understand how much tax will be paid on wages through an example. Let us assume the annual wage of an individual to be £24,000.
Particulars | Values |
---|---|
Monthly wage (£24,000/12) |
£2,000 |
Tax computation |
|
Personal allowance : |
£833 |
Taxable income |
£1,167 |
Basic rate tax @ 20% |
£233 |
|
|
National Insurance computation |
|
Income up to Primary threshold |
£663 |
Income subject to National Insurance @ 12% |
£1,337 |
National Insurance contribution |
£160 |
|
|
Net Pay computation |
|
Monthly Salary (£24,000/12) |
£2,000 |
Basic rate tax @ 20% |
(£233) |
National Insurance contribution |
(£160) |
Take home pay |
£1,606 |
DNS Accountants is an experienced taxation and accounting firm in the United Kingdom, which offers entire range of tax planning services for owner-managed businesses and individuals across the country. DNS helps individuals understand their tax structure and compute the amount of tax payable. The team at DNS comprises of Chartered Accountants, and accounting and MBA professionals that help clients with their tax credits and services such as bookkeeping, auto-enrolment, accounting, self-assessment, and payroll-management and business start-up. Employees / employers can use DNS Accountants online pay calculator to have better understanding of their pay structure. The firm is very principled & delivers supreme customer service and client support. Use our HMRC Tax Calculator & Self Employed Tax Calculator
DNS Accountants help clients focus on maximizing their wealth. It’s impractical to expect any small-business owner to have a comprehensive knowledge of tax and National Insurance rules, DNS Accountants work with employees / businesses to work out their tax and National Insurance contributions.
Get the best advice on tax savings, accounting services, payroll, self assessment, VAT and more, whether you want to call us directly, request a call back or chat online with our experts, rest assured that we will always give you the best advice.If you have any questions, or would like to speak to us in person, please do get in touch. We're here to help.
DNS Accountants
DNS House, 382 Kenton Road,
Harrow, Middlesex, HA3 8DP
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