Tax: just how much do I pay?

jossblowing

Hello there all,

I'm new to this world of work after just graduating... I'm all a little confused by the reams of different taxes that seem to eat away at my wage slip. I just can't seem to find any clear guidance as to how to calculate the total tax. Say I earn £29k pa...

I pay tax on £25k of that ?
is that made up from 10% on 1.5k, 22% on the rest? Is that PAYE as well... how much National Insurance is due? ANd student loans.. is that 9% of my salary, or 9% over and above a certain threshold.

I would so greatly appreciate any advice - I know you can pay financial experts large sums to tell you this stuff, so even pointers to a few picture books would be good.


many thanks,


james

isasmurf

Hi James,
Congratulations on graduating and your first job.
The Inland Revenue has lots of information on its site, but I usually find finding it is the problem! They do have a document called TaxandU aimed at Students and those starting their first job which you may find useful. But it is very large and if you have a dial-up connection will take a good 15-20 minutes to download.

I'll try and answer some of your questions best I can.

PAYE (Pay-As-You-Earn) is the system that takes tax from your pay. Every employee is in this system. It's slighlty more complicated then this, but it basically works out from what you've been paid so far this year what you'll get paid in the rest of the tax year and calculate and deduct the appropriate tax. This way your tax should get paid evenly over the course of the year, unless your pay fluctuates during the course of the tax year.

Everybody gets a personal allowance where their income is free from tax (for this year it is £4,745). This personal allowance can vary between individuals depending on what taxable benefits they get, but basically the first £4,745 is tax free.

Then there are 3 different rates of tax. The starting rate of 10% paid on the first £2,020 of taxable income, then the basic rate of 22% on the next £29,380 of taxable income, with teh higher rate of 40% paid on the rest.

So for someone paid £29k it would work out as
£0-£4,745 (£4,745@0%)=£0 tax
£4746-£6765 (£2,020@10%) = £202 tax
£6766-£29000 (£22,234@22%)=£4,891.48 tax
or £5,093.48 tax in total

National Insurance is treated on a weekly basis, but works in a similar way. For NI there is a flat rate of 11% on earnings over £91 per week up to £610 per week, and 1% on earnings above £610 per week. Earnings below £91 per week are not liable to National Insurance.

For student loans, you start repaying on the 6th April following the end of your course. You don;t need to make repayments until your income reaches £10,000 per annum. You will pay 9% of your income over the starting limit (i.e. 9% on all income over £10,000)

HTH
SS

Paul_Varjak

My niece has just her sandwich year at university. Is there anything she should be particularly aware of in relation to tax during that year?

I assume she does not have to pay of her student loan during the sandwich year even if she earns over £10,000. And do savings have any effect on when and what rate she has to repay her student loan?

I also assume that she is subject to the normal tax bands and allowances and I suppose it is advantageous she will be earning in two different tax years although she will work for a total of 12 months - at least for Income Tax, if not for NI contibutions. Or is she exempt from NI contributions as a student?

isasmurf

I believe if you have over a certain limit (£2,000 I think) of savings then it may affect the rate at which the student loan is repaid. But the loan will not be repaid until after she has finished her course.

I think the main thing to be aware of is, if she doesn't work again during the tax year to remember to claim taxback at the end of the tax year. The tax will have been deducted from her wages assuming she was working for the full tax year, so she could be due a hefty wack. I didn't do this when I did my sandwich year and only realised this 2 months after the time limit to reclaim that particular year was up. Was I not a happy bunny.

She has the same allowance and tax bands as anybody, and yes, she has to pay NI at the same rate as everybody else.

Paul_Varjak

Could she, from April 2005, elect not to have Income Tax deducted from her wages until she has reached the personal allowance limit for that year? As she will only be working about 4 months of the 2005-2006 tax year, I don't suppose she will reach that limit anyway.

Shame about the possible £2,000 limit. She will be getting a £3,000 present from Grandma in December for her 21st birthday and, hopefully, save money while she is working during her sandwich year.

jossblowing

Thank you ever so much saver smurf!!! That's ever so helpful.

kindest,




tom

cosyc

Easiest way to calculate your tax and NIC is to ring the Inland Revenue 0845 60 70 143 and ask for an Employers CD ROM.
Just say you are a prospective employer.

The CD will work it all out for you, and there is even a payroll training package in it if you want to know more. it is free of charge. You don't often get something for nothing from the tax office!!

[Deleted User]

I believe if you have over a certain limit (£2,000 I think) of savings then it may affect the rate at which the student loan is repaid. But the loan will not be repaid until after she has finished her course.

I work for Student Loans and while I dont work on the business side of things, I'm 99.9% sure savings dont have any affect on your ICR loan repayment...

its 9% over 10k (changing to 15k in 2005) as you said.

cheers, Rufus T Firefly.

Finishrich

Could she, from April 2005, elect not to have Income Tax deducted from her wages until she has reached the personal allowance limit for that year? As she will only be working about 4 months of the 2005-2006 tax year, I don't suppose she will reach that limit anyway.

The only time you can elect not to pay income tax when you are a student is if you only work during the holidays and don't earn over that tax years personal allowance ie £4745, plus you need to complete a student tax form P38(s)