National Insurance and Income Tax

National Insurance and Income Tax

What you need to know about:

Contributions

Benefits

Deductions

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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 Self-employed, 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. From6thApril 2015this is £155 per week. This means thatyou 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 £155per 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 womencould electto 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 3500for 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 2015most people under 65 will be entitled to a Personal Tax Allowance of £10,600per year. This means you can earn £203.85per week before paying income tax.

You will not pay any income tax if you earn less than the Personal Tax Allowance.
Blind Person's Allowanceis 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 isan additional rate applied to earnings above £150,000 (additional rate).

From April 2015 most workers pay 20p in the £1 (20%) for the first £31,785of 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 £10,600per year
(personal allowance tax threshold) / No income tax
Earnings between£10600–42,385(basic rate band) / 20p for each pound earned within this band (20%)
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%)

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 / £229.37 per week
NI is 12% of £95=£11.40
Tax is 20% of £46.15 = £9.23
Total =£20.63
£300.00 per week / £263.37 per week
NI is 12% of £145 = £17.40
Tax is 20% of £96.15 = £19.23
Total = £36.63

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)

National Insurance Enquiries Helpline 0300 200 3500

Citizens Advice Bureau (CAB)

Table of Examples

(based on a tax allowance of £10600)

Gross
Annual
Pay / Gross
Weekly
Pay / Weekly
NI / Weekly
Tax / Total
Deductions / Net
Weekly
Pay / Net
Monthly
Pay
£10,000 / £192.31 / £4.48 / £0.00 / £4.48 / £187.83 / 813.93
£10,500 / £201.92 / £5.63 / £0.00 / £5.63 / £196.29 / 850.60
£11,000 / £211.54 / £6.78 / £1.54 / £8.32 / £203.22 / 880.60
£11,500 / £221.15 / £7.94 / £3.46 / £11.40 / £209.75 / 908.93
£12,500 / £240.38 / £10.25 / £7.31 / £17.55 / £222.83 / 965.60
£13,000 / £250.00 / £11.40 / £9.23 / £20.63 / £229.37 / 993.93
£14,000 / £269.23 / £13.71 / £13.08 / £26.78 / £242.45 / 1050.60
£15,000 / £288.46 / £16.02 / £16.92 / £32.94 / £255.52 / 1107.27
£16,000 / £307.69 / £18.32 / £20.77 / £39.09 / £268.60 / 1163.93
£17,000 / £326.92 / £20.63 / £24.62 / £45.25 / £281.68 / 1220.60
£18,000 / £346.15 / £22.94 / £28.46 / £51.40 / £294.75 / 1277.27
£19,000 / £365.38 / £25.25 / £32.31 / £57.55 / £307.83 / 1333.93
£20,000 / £384.62 / £27.55 / £36.15 / £63.71 / £320.91 / 1390.60
£22,500 / £432.69 / £33.32 / £45.77 / £79.09 / £353.60 / 1532.27
£25,000 / £480.77 / £39.09 / £55.38 / £94.48 / £386.29 / 1673.93
£27,500 / £528.85 / £44.86 / £65.00 / £109.86 / £418.98 / 1815.60
£30,000 / £576.92 / £50.63 / £74.62 / £125.25 / £451.68 / 1957.27
£32,500 / £625.00 / £56.40 / £84.23 / £140.63 / £484.37 / 2098.93
£35,000 / £673.08 / £62.17 / £93.85 / £156.02 / £517.06 / 2240.60
Higher NI & Tax Rate
£45,000 / £865.38 / £80.21 / £142.36 / £222.57 / £642.82 / 2785.55
£47,500 / £913.46 / £81.17 / £161.59 / £242.76 / £670.70 / 2906.38
£48,000 / £923.08 / £81.36 / £165.43 / £246.80 / £676.28 / 2930.55
£50,000 / £961.54 / £82.13 / £180.82 / £262.95 / £698.59 / 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.

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