PERS leaflet number 2
March 2015
Promoting, sharing and developing opportunities for
best employment practice
National Insurance and
Income Tax
What you need to know about:
Contributions
Benefits
Deductions
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www.pers.org.uk
Deductions from your pay
All workers must pay income tax and National Insurance (NI) contributions if they
earn over a certain amount (the Earnings Threshold). These amounts usually change
at the beginning of April. Once you have passed the thresholds, the amount you pay
for both income tax and NI will depend on how much you earn. If you are not Selfemployed, your employer has a legal responsibility to deduct your tax and NI
contributions from your wages and pass them on to Her Majesty’s Revenue &
Customs (HMRC). Details of deductions must appear on your payslip.
National Insurance
Payments
You do not start paying NI contributions until you earn above the Earnings
Threshold. From 6th April 2015 this is £155 per week. This means that you will pay
NI contributions on your weekly earnings as follows:
Up to £155.00:
No contribution
£155.01 - £815.00:
12p in every £1 (12%)
Over £815.00:
2p in every £1 (2%)
Your employer will also pay a NI contribution on your behalf if you are earning over
£155 per week.
Unlike income tax, your NI is worked out on each separate job you do. So, for
example, in a week you might earn £95 in one job and £75 in another. Although
your total week’s earnings come to £170 - above the NI Earnings Threshold - you will
not qualify for contributory benefits in either job, nor will you pay NI contributions.
Entitlements
National Insurance contributions are paid to contribute to a range of benefits and
payments made by the welfare state. The amount of national insurance
contributions you have paid during your working life affects your entitlements to
many benefits including the state retirement pension.
Sometimes when you are not working you can be ‘credited’ with contributions. For
example if you are sick or unemployed. It is important to remember that if you pay
the full rate of contributions and become unemployed, you should 'sign on' to
maintain your contribution record even if you are not eligible for benefit. Contact
your local Jobcentre Plus in order to do this.
You may also be able to claim credits for a range of other reasons: if you are on
maternity leave or looking after your children, if you are a foster carer or if you are
caring for somebody sick or disabled. Some of these are National Insurance credits
for parents and carers which replaced Home Responsibilities Protection from 6 April
2010. Some young workers, students and trainees get credits too. So do some
workers aged 60 or over who take early retirement.
Most people who are in paid work cannot get these type of credits. If you work and
earn below £112 a week (from April 2015), you might not qualify for contributory
benefits for example the state retirement pension. You also need to be earning
above this amount to qualify for Statutory Sick Pay (SSP) and Statutory Maternity
Pay (SMP), even though these are not contributory benefits. See other leaflets in
this series for more information about these.
In the past some married women could elect to pay a reduced National Insurance
contribution which limited their entitlement to claim state benefits in their own
right. Women who continue to pay reduced contributions should check their
entitlements as it is likely to affect how much pension they will receive on
retirement.
People who are self-employed pay different types of contributions to employees.
This affects the type of benefits they can claim.
There are different types of national insurance contributions and credits and not
all entitle you to claim all contributory benefits. Working out your entitlements
can be complicated. If you are unsure about anything to do with your National
Insurance contributions you can ring The National Insurance Enquiries Helpline on
0300 200 3500 for further information and advice.
Income Tax
Unlike NI, the amount of tax you pay is worked out on your total earnings, not
separately for each job you do. How much tax you pay depends on the tax code you
are given by HMRC at the start of the tax year in April, so people with the same
gross earnings may pay different amounts of tax because they have different tax
codes. From April 2015 most people under 65 will be entitled to a Personal Tax
Allowance of £10,600 per year. This means you can earn £203.85 per week before
paying income tax.
You will not pay any income tax if you earn less than the Personal Tax Allowance.
Blind Person's Allowance is an extra allowance of £2,290 for those who are
registered severely sight impaired.
From April 2015 there is also a new Transferable Tax Allowance for married couples
and civil partners. From 6 April, an individual within a marriage or civil partnership
who earns less than the £10,600 income tax personal allowance for 2015/16 will be
able to transfer £1,060 of their allowance to their spouse, so long as the recipient
doesn't pay higher rate (40%) or additional rate (45%) tax.
More Information on Tax Thresholds and Bands
There are three tax bands as shown below. People earning more than the personal
allowance tax threshold but less than the higher rate tax threshold are “basic rate
taxpayers”. People who earn more than the higher rate tax threshold pay more tax
for income above this figure (“higher rate taxpayers”). There is an additional rate
applied to earnings above £150,000 (additional rate).
From April 2015 most workers pay 20p in the £1 (20%) for the first £31,785 of
taxable earnings (earnings over the tax-free threshold) and 40p in the £1 (40%) for
taxable earnings between £31,786 - 150,000
For taxable earnings above £150,000 tax will be paid at 45p in the pound (45%).
The personal tax allowance threshold reduces by £1 for every £2 of earnings over
£100,000. This reduction applies irrespective of age.
Most people with a standard tax allowance are currently taxed as follows:
Earnings below £10,600 per year
(personal allowance tax threshold)
Earnings between £10600 – 42,385
(basic rate band)
No income tax
Earnings between £42,385 - 100,000
(Higher rate tax threshold)
40p for each pound earned within this
band (40%)
Earnings between £100,000 - £150,000
(higher rate tax threshold with reduced
personal allowance)
40p for each pound earned within this
band with reduced personal allowance
Earnings over £150,000
(additional rate tax threshold)
45p for each pound (45%)
20p for each pound earned within this
band (20%)
Some example calculations
These are examples of the average amount of net pay (that is the amount you get
'in your hand') you will receive for given amounts of gross pay. They are based on
someone with the normal personal tax allowance who receives this amount of pay
in the first week of a new tax year. They may be different for someone on a different
tax allowance, someone starting a new job in the middle of a tax year, or receiving
tax credits through the payroll.
Gross pay:
Net pay:
£200.00 per week
£200.00 per week
(No deductions as gross pay below both NI and tax thresholds)
£250.00 per week
NI is 12% of £95 = £11.40
Tax is 20% of £46.15 = £9.23
Total = £20.63
£229.37 per week
£300.00 per week
NI is 12% of £145 = £17.40
Tax is 20% of £96.15 = £19.23
Total = £36.63
£263.37 per week
See the back of this leaflet for more calculations.
What if something goes wrong?
You can tell how much tax and NI you are paying by looking at the deductions on
your payslip. All employees, regardless of the number of hours they work, have the
right to receive an itemised payslip from the first pay day after they start work.
If you collude with your employer to avoid paying tax, you could be liable for any
outstanding NI and income tax payments and may lose employment rights and
benefit entitlements. If you are worried about whether or not income tax and NI are
being deducted at the right level, you can contact your local HMRC office.
Useful contacts
Her Majesty’s Revenue and Customs (HMRC) www.hmrc.gov.uk
National Insurance Enquiries Helpline 0300 200 3500
Citizens Advice Bureau (CAB) www.adviceguide.org.uk
Table of Examples
(based on a tax allowance of £10600)
Gross
Annual
Pay
Gross
Weekly
Pay
£10,000
£10,500
£11,000
£11,500
£12,500
£13,000
£14,000
£15,000
£16,000
£17,000
£18,000
£19,000
£20,000
£22,500
£25,000
£27,500
£30,000
£32,500
£35,000
£192.31
£201.92
£211.54
£221.15
£240.38
£250.00
£269.23
£288.46
£307.69
£326.92
£346.15
£365.38
£384.62
£432.69
£480.77
£528.85
£576.92
£625.00
£673.08
£45,000
£47,500
£48,000
£50,000
£865.38
£913.46
£923.08
£961.54
Weekly
NI
Weekly
Tax
Total
Deductions
£4.48
£0.00
£4.48
£5.63
£0.00
£5.63
£6.78
£1.54
£8.32
£7.94
£3.46
£11.40
£10.25
£7.31
£17.55
£11.40
£9.23
£20.63
£13.71
£13.08
£26.78
£16.02
£16.92
£32.94
£18.32
£20.77
£39.09
£20.63
£24.62
£45.25
£22.94
£28.46
£51.40
£25.25
£32.31
£57.55
£27.55
£36.15
£63.71
£33.32
£45.77
£79.09
£39.09
£55.38
£94.48
£44.86
£65.00
£109.86
£50.63
£74.62
£125.25
£56.40
£84.23
£140.63
£62.17
£93.85
£156.02
Higher NI & Tax Rate
£80.21 £142.36
£222.57
£81.17 £161.59
£242.76
£81.36 £165.43
£246.80
£82.13 £180.82
£262.95
Net
Weekly
Pay
Net
Monthly
Pay
£187.83
£196.29
£203.22
£209.75
£222.83
£229.37
£242.45
£255.52
£268.60
£281.68
£294.75
£307.83
£320.91
£353.60
£386.29
£418.98
£451.68
£484.37
£517.06
813.93
850.60
880.60
908.93
965.60
993.93
1050.60
1107.27
1163.93
1220.60
1277.27
1333.93
1390.60
1532.27
1673.93
1815.60
1957.27
2098.93
2240.60
£642.82
£670.70
£676.28
£698.59
2785.55
2906.38
2930.55
3027.22
This table is intended as a guide only. It has not been verified by a tax expert. If in
doubt, check with a tax specialist or HM Revenue & Customs.
Advice line 01924 428030
Monday and Friday 10am to 1pm
Tuesday, Wednesday and Thursday 10am to 4pm
Evening session Tuesday 5.30pm to 7.30pm
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Humber. Reasonable rates apply for other workers, organisations and
employers. Visit our website for details.
www.pers.org.uk
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The information in this leaflet was accurate at the time of going to press. It is
intended as a guide and is not a full statement of the law. Seek advice before taking
action. You can feedback about our service by clicking on the link on our website.
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