My son recently started his career and I had to help him understand his payslip and check his tax code was correct. I wanted to write this article for others in the same situation.
As an individual, you are entitled to £12,570 of tax-free income in a year and this is shown as a tax code of 1257. You should have this as your tax code, or higher if you are claiming any expenses (eg a uniform allowance). The amount may be reduced if you receive any benefits (eg medical insurance or gym membership).
If your tax code is wrong, you can have this corrected by logging onto your personal tax account and updating the details of your employer’s name, their PAYE reference and confirmation if this is your only job. If you have more than one job, your personal allowance is split between them but you can elect which job to allocate most of it to.
National Insurance Contributions
As well as paying income tax, you will start to pay Class 1 National Insurance Contributions. This is a compulsory payment and for most people is 12% of your pay. It starts once you earn more than £242 a week.
Pension – workplace pension
Once you are an employee and become eligible (usually aged 22 and earning more than £10,000), your employer must enrol you onto a workplace pension. It is your decision if you wish to also pay into that pension or not. The standard contribution is 5% of your salary, and your employer usually adds 3%.
If you receive hourly pay, commission or shift pay, always check your gross pay on your payslip to ensure your employer has included all amounts payable to you. You may find that your employment has a cut off date for such payments: be aware of what this date is so you can confirm your gross pay is correct.
Be aware of the different tax bands and remember that once your total income (including benefits) reaches £50,270, any additional amount will then be liable to tax at 40%. Everything between your tax-free personal allowance and this amount is taxed at 20%.
Please always seek professional advice before taking any action. We are happy to answer questions in future issues. Please send your questions through the Contact Us page on our website.
Chantal Baker is the director and founder of Champ Consultants Ltd, an accountancy and tax consultancy practice in Caterham. You can follow them on their social media channels. Chantal is on TikTok as ‘business_finance_mentor’.