If you are going to start your first job, Congratulations! It’s a huge step in your life, however, something crucial you would need to know beforehand and we are talking about TAX here.
A basic question you may wonder: Do I need to pay tax on my first job? The answer is yes and we will explain more about it below.
Pay As You Earn system (PAYE)
Pay As You Earn system (PAYE) is HM Revenue and Customs’ (HMRC) system to collect Income Tax and National Insurance from employment. HMRC will issue a tax code for you to let your employer deduct the correct tax from your salary.
Payslip
Every month you will receive a written pay statement on how much you get paid.
In the statement, you will see:
- Your tax code
- How much you’ve been paid
- How much Income Tax, National Insurance and Employer Pension has been deducted
Make sure you keep your monthly pay slip as you will need it when you have paid too much tax in order to claim it back.
Beforehand, you should know about the personal allowance. Everyone is entitled to a personal allowance to reduce taxable income. The standard personal allowance is £12,570 in the 2020/21 tax year. Anything you make below this is tax-free. Then, your employer will use the tax code to calculate your income tax.
National Insurance
How much you will need to pay your national insurance depends on your earnings, this would pay for state benefits and state pension.
Workplace Pension
Workplace pension is a way of saving for your retirement by deducting contributions from your salary. Your employer contributes to the pension for you as well.
Tax Rebate
It seems nothing can go wrong as PAYE helps you calculate tax deductions, however, it doesn’t mean you are paying the right amount of tax. Also, you may be entitled to tax relief, to find out whether you have paid the right amount of tax, contact our specialist for further consultation.
Source: GOV UK
