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Payslip Tax Deduction in the UK

Every employee in the UK has the right to know about their income in advance through a proper payslip. A payslip can be provided to the employee either as a manual payslip that is printed in paper or a digital payslip that is sent through email or uploaded in the company’s portal.

Understanding the payslip

The payslip must contain

  • The gross income ie. The total pay before deductions
  • The net income ie. The exact pay after deductions
  • The break-down of deductions that can be variable deductions like tax, National Insurance, student loan, etc. or the fixed deductions like union subscriptions, etc.
  • The method of payment that states whether the payment is done through bank transfer or cash.

Tax deduction in the UK

Before getting into the tax deduction we need to understand the tax rules in the UK. Every employee in the UK, who has a standard earning is subjected to pay tax to the UK government. The income completely falls under HM Revenue and Customs (HMRC). There are several sources of income like the income you get through your job, or the profit you gain out of your business, rents you get from your buildings, interest you get out of your savings, and many more. For all the incomes you get, you need to pay tax.

UK government collects the tax from its citizen in several ways.

  • The salaried employees will pay their tax through PAYE (Pay-as-you-earn).
  • If you are a freelancer or a self-employed person then you need to file a Self-Assessment UK tax return.
  • When you have savings in a bank, then the bank will deduct the tax from the source and will pay it to the government.
  • There is also a one-off payment system is followed.

Tax slab for employees

The tax ranges from 0% to 45% of an individual income. To lessen the burden of the citizens; the UK government has announced a tax-free allowance up to £12500. People who earn below this amount need not pay any tax to the government. When the earning is between £12501 to £50000, 20% of tax is charged in income. For earnings between £50001 and £150000 will be charged 40% tax. The employer will deduct it from the employee salary through the PAYE scheme.

PAYE and payroll for UK employees

PAYE will be operated as a part of payroll by every employer in the UK. The HMRC uses the PAYE scheme to collect tax from the employees. When an employer doesn’t pay more than £120 for his employee then he may not register with PAYE. If they pay more than £120 then they need to get themselves registered with PAYE

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How the employer pays the tax to the government?

  • The employer should register himself with HMRC and get the credentials to log in to the PAYE account.
  • Have your payroll software that can calculate the pay for the employees along with the allowances and the deductions.
  • Maintain these records separately in your database.
  • Intimate the HMRC about the deduction of the employee payment before their payday.
  • Now pay to HMRC the tax you have deducted from the employee.

Maintaining your tax records

The employer should have a separate team to maintain the tax reports and should at least maintain it for a minimum of 3 years. At any time, HMRC may come and check your records and clarify that the amount you have paid to them is the correct amount. If the record is not properly maintained then the HMRC department may charge a penalty up to £3000.

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FAQ

How is PAYE calculated?
The amount you earn is taken into consideration and the amount is checked along with the tax slab. According to the slab, you will be charged. And if you are eligible for personal allowance then you may not pay the tax.

What is the due date for paying tax to HMRC?
If you are paying on monthly basis then you need to clear the tax payment on or before the 22nd of the next tax month.

How can I pay the tax amount to HMRC?
After calculating the tax deduction amount you can either direct deposit the amount in HMRC account or pay cash or cheque at your bank.

What the PAYE bill will contain?
The PAYE bill will include employee income tax deductions, Class1 and 1B National insurance, student loan repayment, construction industry scheme deductions, and apprenticeship levy payments.

What should I do if I have overpaid the tax?
If you feel that you have overpaid the tax through PAYE or self-assessment then you can ask for a refund. For this, you need to visit the gov.uk website and process the refund request. Keep monitoring the status of your request periodically. If you are a tesco employee check payslipview for more information

What is the UK National insurance?
The tax paid by the employer as well as the employee is utilized for the benefits of the State and is termed as National insurance.

How much should an employee pay for National Insurance?
If you earn more than £183 per week then you need to pay around 12% and it limits up to £962 per week.

How can I estimate the income tax and National Insurance that I need to pay?
You can visit the gov.uk site and there you will find a calculating tool that can help you to get an estimate regarding your income tax and the National Insurance.

Should an employer intimate HMRC about recruiting a new employee?
Yes, the employer needs to inform HMRC about the new employee, and for this, the employee should submit form P45 from his previous company.

Is it mandatory to send a payslip to the employee?
Yes, it is mandatory to send a payslip to the employee and the UK laws strictly want the employer to follow this rule because the employee has the full right to know about his income.

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