Taxes are collected by HM Revenue & Customs to pay for public services, such as transport, health and education. In this section we will talk about the different types of tax that you may have to pay.
You pay Income Tax on:
- your wages if you are employed
- the profits from your business if you are self-employed
- some benefits, like Jobseeker's Allowance, Carer's Allowance and Incapacity Benefit.
There is a tax free allowance that you can earn before you are taxed. The amount for 2010-11 is £6475. After you have earned this amount you are taxed 20% of your income.
National Insurance is paid to build up an entitlement to certain state benefits, for example, a state pension. [HRMC]
Before you are 16 you will be issued with your National Insurance number. This is a number that is unique to you and will record all social security information. Once you are 16 you will need to pay national insurance on the wages you earn. If you earn between £110 and £844 a week the percentage you pay is 11%.
How You Pay Your Taxes
You pay tax on your 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 they pay you.
Tax codes ensure you pay the right amount of tax relevant to what you earn. However, if you start a new job or work a varied amount of hours, employers will not have the information to select a tax code so you will put on an emergency tax code (BR). Under this code you will pay a higher amount of tax, however you can claim back the tax. For further information about your tax code and how you change it click on the following link:
You may also be interested in understanding how your tax is calculated. This link gives you this information:
The link below gives an example of a payslip and explains each of the headings that you will see on your payslip:
Tax on Casual, Part-Time or Temporary Work
If you work part-time or on a casual or temporary basis you must pay Income Tax and National Insurance.
'Cash in Hand'
It is illegal for your employer to pay you 'cash in hand' without deducting tax and NICs from your wages. If you accept money in this way then you risk losing your employment rights and the rights to some benefits.