Tax regime in the UK - income tax and non-taxable income for individuals
In this section, I would like to focus on the ‘Individual income tax rate’ (the so-called income tax rate). The income tax is paid by employer.
Tax yearIn the UK, the tax year lasts always from 6th April until 5th April of the following year.
Each employee has the right to get the form P60 from his or her employer at the end of the tax year. You must be given the form no later than on 31th April (in electronic or paper version).
This form also certifies how much you paid on your taxes last year. This information is very important from several reasons:
- Request for tax return.
- Request for tax credits.
- Proof of income in case you want to apply for a mortgage.
- Request for the form CA3916 when you leave the UK.
You should get this type of form from your employer, when you leave the job. Thanks to it, you know how much you paid on taxes. Moreover, the employer is obliged to give you the form.
In case you are going to leave the UK, or you change your address, it is necessary to announce the changes to your employer, the accounting department. It is a big deal to send the form P45 to different address, which is not mentioned in your contract.
Form P45 has 4 parts (Part 1, 1A, 2 and 3):
- Employer is going to send Part 1 to the tax office (HM Revenue and Customs = HMRC), the rest is then given to you.
- Parts 2 and 3 you are given to your new employer (or to the work office, in case of your registration).
- Part 1A should be saved for your personal need.
If you do not have the form P45
Newcomers might not have the form P45, as it is not compulsory, for example in the situation that you lost your P45. However, your current employer must find out, how much to reduce from your salary as an income tax.
One of the options is the ‘Starter Checklist’, thanks to which the employer can get all necessary information. The employer would ask you about your previous or current jobs, your allowance or student loans.
This helps to find out the right tax code before your first salary.
Standard tax concession is valid for the amount of £11, 000 earned per a tax year.
Tax concessions could be higher, if you were born before 6th April 1938 or if you have the benefits based on your disability, for example blindness. On the other hand, tax concessions could be also lower, if you had an income higher than £100, 000 per a tax year.
Income taxes (self-employed)
|Taxation rate||taxed income (per tax period) without any concessions|
|Basic rate of 20 %||£0 to £31, 785|
All people must pay the income tax, if the year income is over the limit of £11, 000
|Higher tax rate of 40 %||£31, 786 to £150, 000|
All people must pay the income tax, if the year income is higher than £42, 385
|Tax rate of 45 %||All people must pay the income tax, if their yearly income is over £150, 000|
Income tax is: £5, 400.
£38, 000 (your income per a tax year) – £11, 000 (tax concessions) = £27, 000 imposed tax, 20 % reduced from your salary.
If you have only one job for the whole tax year, your employer pays taxes automatically. In case that you are employed by more employers, you pay your taxes differently.
At the end of the tax year, you should get to know how much you really paid on taxes, based on forms P60 or P45. In case that the amount in the form and your calculations differ (as in the example above), you can apply for the tax return.
In your form, you should focus on the section of taxes. You do not have to care about the national insurance, as it does not influence your taxes.
Tax code is the number telling your employer, how much you should pay on taxes.
The tax code will be given to you from HM Revenue and Customs (HMRC). The office sends it automatically also to your employer.
The tax code consists of:
- Numbers (your income in net).
- Very often a letter (influence on the non-taxable amount: Tax-free Personal Allowance). People, who were born before 5th April 1938, have this tax code: 1100L:
- 1100 indicates non-taxable amount (£11, 000), which is divided by 10.
- L is the letter, which indicates the right for tax concessions for the individual, natural person.
Every tax year has its own reason for tax concessions, they differ every year and noted in the tax code. For example, there can be a change, which is based on other state or firm benefits. It might happen that you pay incorrect amount for taxes, as you stated tax code wrong.
Where to find tax code:
- Form P45
- Form P60
- PAYE Coding Notice
In case that you had more than one employer, they use different tax codes.
Emergency tax code
Important, the code is only temporary. With this code, you pay all your income taxes (20 % from all incomes), which are higher than £11, 000.
If you use emergency tax code, you can see one of these codes on your payslip:
- 11, 000L W1
- 11, 000L M1
- 11, 000L X
The emergency tax code is given to you only in the following cases:
- Start in a new job.
- Your employee status is changed from self-employed to regular.
- You got other benefits or pension.
You get the regular tax code, when you give P45 form to your employer. If you do not have this form, you just fill in a new Starter Checklist.
You get a new tax code – PAYE Coding Notice from the HM Revenue and Customs (HMRC), which is also sent to your employer or provider of your pension. Your next payslip should show:
- New tax code.
- Returned money, if you paid taxes using the wrong tax code.
Contact for taxation office and information about changing your tax code to the correct one.
If your tax code is still wrong, you should contact the tax office. After you send this document, everything should be alright.