Working in the UK you will obviously have to deal with and know something about taxes in the UK. We will focus on taxes as an employee.
The minimum wage in the UK is divided into age groups: between 18 and 20 £ 5,55/hour; between 21 – 24 £ 6,95/hour and above 25 years old £ 7,20/hour. The hourly compensation can be increased with tenure. These amounts have been set from April 2016 and might change in the future. The average income is around £ 2.036/month.
When working for a Brittish company, your employer will take care of all social security and tax payments for you. To be able to pay these deductions you need a National Insurance Number. You can get this number online. Usually your employer takes care of this for you upon your arrival.
The following explanation applies to a single person household with a job for a Brittish company in the UK.
Income Tax Calculation
The UK has a progressive income tax system. This means that you pay different rates over higher income. A progressive tax system is designed in a way that higher earners contribute more to state funds than lower incomes. Note that in Scotland, although part of the UK, the tax rates are slightly different.
Tax rates in the UK are set for monthly gross income:
Box 1: 0% up to £ 959,08;
Box 2: 20% between £ 959,08 and £ 3.750;
Box 3: 40% between £ 3.750 and £ 12.500;
Box 4: 45% above £ 12.500.
Taxes are calculated over the taxable income. This means you pay the tax rate that applies to your income you have in a box. In other words depending your income, it is split over the various boxes and you pay the indicated rate that applies in that box only over the income in that box. You start paying income taxes over the amount you earn above £ 959,08/month. In other words you always pay 0% over the first £ 959,08 of your monthly gross income.
National Insurance Calculation
Besides income tax you also contribute to the National Insurance. In this fund are combined contributions for health, pension, disability etc. The National Insurance calculation works similar to the Income Tax Calculation. The National Insurance calculation is based on your gross income and does not look at your taxable income. You start paying National Insurance over the amount you earn above £ 680/month. In other words you always pay 0% over the first £ 680 of your monthly gross income.
Rates for 2017 are set at :
0% up to £ 680/month
12% between £ 680,01 and £ 3.750/month
2% over £ 3.750/month
Added to this your employer also contributes for you to the National Insurance for its employees. Your employer takes care of all these payments.
Monthly Gross Income: £ 1500
Tax Free Sum: £ 959,08
Monthly Taxable Income: £ 540,92 (= £ 1500 -/- £ 959,08)
-/- Income Tax 20% over taxable income: £ 108,18
-/- National Insurance 12%: £ 98,36 (= 0,12 x £ 820 (= £ 1500 -/- £680))
Total deduction: £ 206,54
Monthly Nett Income in your bank account: £ 1293,46
There are a number of reasons for tax relieve. Tax relieve means that you deduct expenses from your taxable income and thus pay income tax over a lower taxable income. However tax relieve is only possible if your employer does not pay or offer an alternative for the expense. Reasons for tax relieve are expenses you have to be able to do your job, such as travel expenses or study materials. In case of an expat a tax relieve application could be interesting if you leave your job prematurely during a fiscal year.
The UK government has very good and informative websites on all these matters. We will list the most common.
Find information for:
National Insurance Number
National Insurance Rates
National Insurance Personal Status (eg. for checking your accumulated pension)
Contact with National Insurance (eg. for an address change)
Income Tax Rates
Income Tax Relieve
Contact with Revenue and Customs (HRMC)
Tax Calculator (calculate your personal situation – non-governmental)
The percentages for social securities and any amount in this article can be changed. These percentages and amounts are related to the situation in 2017. For accurate information ask your HR or consult the available online tools.
If you have any questions, please contact us: firstname.lastname@example.org.