Totaljobs.com > Career Advice > Salary & taxation > Taxing issues
Taxing issues
By Adele Kimber
Paying tax and national insurance is very straightforward for many permanent employees. Most do not have to fill in an annual tax return and their tax and national insurance payments are dealt with by their employers.
But it’s important to understand all the basic tax regulations and to make sure you keep all the necessary documents to comply with the ever-changing rules.
How do I pay tax?
Employees pay tax on their wages through a system called Pay as You Earn (PAYE). Your employer uses this system to deduct income tax and national insurance contributions from your wages before you are paid.
The amount you earn before tax is deducted is called your gross salary; the amount you get after tax and national insurance has been paid is your net salary. As well as being taxed on your pay, you’re also taxed on benefits your employer provides, such as a company car, a low interest loan or medical insurance. You may also have to pay tax on tips you receive as part of your job.
The good news is you don’t pay tax on all your wages – everybody can receive a certain sum each financial year without paying tax. Any earnings above this sum are taxed in bands at a fixed rate. Check the current rates here.
What happens when I change jobs?
If you leave your job – either voluntarily, through dismissal, redundancy or because you retire – your employer should give you a Form P45. This gives details of your employer’s tax office and tax reference number, your tax code and the total amount of pay and tax deducted during the current tax year. Your new employer will use this to deduct the right amount of tax.
What tax information will I have to deal with?
Even if you don’t have to fill in a tax return, you will receive a record of the tax you have paid. You must keep those records and be prepared to complete a tax return in the future, if asked to do so.
You may receive:
- P45. You will receive this record of your pay and tax if you leave your employer during the tax year.
- P60. Your current employer should give you this by May 31, after the end of the tax year.
- P11D. This is a record of your taxable expenses and benefits in kind.
- Information about expenses and benefits in kind you received which are not liable for tax. These do not need to be included on your tax return .
How do I deal with assessing the tax I owe?
If you need to fill in a tax return, HM Revenue and Customs will notify you and send the relevant forms.
Self-assessment was introduced in 1997 for people who have complex tax arrangements. These include the self-employed, business partners, company directors and people who pay tax at higher rates. It is designed to make it easier for people who would otherwise have to fill in numerous tax return forms or who pay different levels of tax on incomes from different sources.
Self-assessment taxpayers get an eight-page tax return form and a guide on how to complete it. You can also now complete and send your tax return online.
How are benefits affected by tax?
If your employer provides you with non-cash benefits – such as a company car or medical insurance – you may have to pay tax on them. If you’re a company director, or your pay, including the value of your benefits, is £8,500 or more in a year, you will always have to pay tax on any benefits you receive.
If you receive any taxable fringe benefits, you must list them and their value on your return for the relevant tax year. Your employer also has to make a return to the tax office giving details of any fringe benefits given to you.
Company cars are often the most complicated benefit to assess and the tax depends on several things, such as:
- the car’s list price, including any accessories;
- its carbon-dioxide emissions; and
- the type of fuel it uses.
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