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Wednesday, 3 October 2012

Starting your first job - tax and National Insurance

When you become an employee your employer is responsible for deducting Income Tax and National Insurance from your salary before you receive it. This system is called PAYE (Pay As You Earn). You'll get paperwork relating to PAYE from HM Revenue & Customs (HMRC) and your employer.

Payslips

Each payday, your employer should give you a payslip. It's a receipt for the tax you've paid, showing details like:

  • your earnings before tax - your 'gross pay'
  • Income Tax, National Insurance contributions and student loan repayments, if relevant, that were deducted from your pay
  • your earnings after tax - your 'net pay'
  • your tax code

Your National Insurance number

You will need to tell your employer your National Insurance number to make sure the Income Tax and National Insurance contributions you pay are properly recorded. You will find your National Insurance number on the National Insurance number card or notification letter you received from HMRC when you reached 16.

HMRC no longer issues National Insurance number cards.

PAYE Coding Notice

When you start work, HMRC will send you a tax code on a PAYE Coding Notice. They also send a copy of the Coding Notice to your employer, who'll use it to work out how much tax to deduct from your pay.

Emergency tax codes

Your employer may use an 'emergency tax code' until HMRC issues the right one. If you've paid too much tax you'll get it back through PAYE.

If you leave your job before you get the right code, or you want to claim tax back for a previous tax year, you can apply to HMRC for a refund.

PAYE forms P45, P46 and P60

P45

The form P45 is a record of your pay and tax deductions. You'll get it from your employer when you stop working for them. It shows details like:

  • your tax code and PAYE reference number
  • your leaving date
  • your wages so far in the tax year - 6 April to the following 5 April
  • how much tax was deducted from your wages

A P45 has four parts. Your employer sends one part to HMRC and gives you the other three. When you start a new job, you give two parts to your new employer and keep the other one called Part 1A for your own records. 

P46

If you're starting your first job and don't have a P45, your employer will give you a form P46 to fill in and sign. HMRC will then process your P46 and issue your tax code.

It’s important you complete your P46 before your first pay day. If you don’t, you could end up paying the wrong amount of tax.

P60

Form P60 is an annual summary of all your payslips. Your employer gives you one at the end of every tax year, if you still work for the employer. You keep your P60 as a record of your pay and the tax that was deducted.

Student loan repayments

If you've got a student loan to repay, it'll happen automatically through PAYE once you start working and earning more than the repayment threshold.

HMRC gives your employer the information they need to deduct the right amount from your wages. Your payslip must show how much has been deducted. If you have any queries about your student loan repayments you can contact HMRC.

Keeping records

What records to keep

Keep the paperwork that contains details about your pay and tax, like:

  • payslips and PAYE Coding Notices
  • P45 and P60 forms
  • details of taxable expenses
  • 'benefits in kind' forms from your employer - a benefit in kind is something you get for doing your job that isn't money
  • information about any redundancy award or termination payment you get when your contract ends
  • certificates for any 'Taxed Award Schemes'
  • notes of any tips or gratuities you get and any other taxable income or benefits that you haven't already recorded somewhere else
  • details of any state benefits you've received

If anyone (other than your employer) gives you benefits in kind for doing your job, you should keep a note of their name and address and what they gave you.

Why keep records?

You'll need to refer to your records later if you ever need to:

  • complete a Self Assessment tax return
  • reclaim overpaid tax
  • apply for benefits and tax credits

How long to keep them

HMRC suggests you keep your records for at least 22 months from the end of the tax year they relate to. The tax year runs from 6 April to the following 5 April, so keep paperwork until at least 31 January nearly two years later.

Provided by HM Revenue and Customs

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