Basic tax questions

jamesallen

Hi.

I'm on a gap year at the moment and I've never worked. I've recently got a Christmas temp job at John Lewis, and I will subsequently see if I can get kept on, or look for another job, but I don't anticipate earning much over the personal allowance this year.

Say I end up making £4000 from work and £2000 from savings, will my wages be net of NI/income tax? Do I have to reclaim this from the taxman at the end of the year? Also, though the tax calculator on MSE suggests I won't need to pay any NI, the info I found on the HMRC website says:

You can earn up to £139 a week (2011-12) before you pay any National Insurance contributions. This is known as the 'primary threshold'

I might well earn more than this per week, but not pass the personal allowance because of when the tax year falls and spells out of work. Do I still have to pay NI?

Savvy_Sue

You pay NI in any week when you earn over the limit. You can't claim that back: it's either due or not.

However, if you give your employer a P46 which says this is your only job you shouldn't be paying income tax at this stage. If you have paid any, you should be able to claim it back if your income remains under the limit.

CLAPTON

when you start your job you will need to fill in a P46; you tick the A which is appropritate if you have had no job since april or claimed JSA

this probably means that you will pay no tax in this tax year as you benefit form a £7,475 tax free allowance

national insurance NI is differnet and yes you will pay 12% of everything you earn over 139 per week

I'm confused about your savings
are you saying you have 2,000 in savings (not taxed as such
or that your saving interest is 2,000? (which is potentially taxed if total income is over 7475 oer annum)

jamesallen

CLAPTON wrote: »

when you start your job you will need to fill in a P46; you tick the A which is appropritate if you have had no job since april or claimed JSA

this probably means that you will pay no tax in this tax year as you benefit form a £7,475 tax free allowance

national insurance NI is differnet and yes you will pay 12% of everything you earn over 139 per week

I'm confused about your savings
are you saying you have 2,000 in savings (not taxed as such
or that your saving interest is 2,000? (which is potentially taxed if total income is over 7475 oer annum)

Around £2000 in interest. I don't think I'll go over the personal allowance - in which case am I correct in thinking I won't pay any tax on this? If I do go over I understand there is an introductory 10% savings interest tax rate.

jamesallen

Thank-you both I will bring in a P46 when I turn up for work.

One other question - say hypothetically I were to have twenty weeks this year earning £200 per week, what benefits would I accrue in that time from my NI contributions? Would I start building up pension entitlement?

John_Pierpoint

Here is a thread about how to (or how not to) get your interest on savings paid "gross", ie no 20% tax taken off.
https://forums.moneysavingexpert.com/discussion/1003473

I am assuming that you just have interest earning cash or "bond" investments generating the £2K gross, "on shore" here in the UK?
(2K is 2% of £100,000 or 4% of £50,000, so you have a reasonable fund there. Perhaps I am making assumptions about your age?)

http://www.hmrc.gov.uk/taxon/bank.htm

If you have other sources on income (eg share dividends - rents etc.) then the tax situation could be more confusing.

antonic

From the HMRC website
How you pay tax on savings income

Savings income is added to your other income and taxed after your tax-free allowances – for example Personal Allowance - have been taken into account, as follows:

• taxable savings income that falls within the £2,560 starting rate for savings Income Tax band is taxed at 10 per cent - but only if the rate band has not been used up by other income as savings income is taxed last
• taxable savings income (included with any other income) that rises above the £2,560 starting rate for savings Income Tax band, but falls within the £35,000 basic rate band, is taxed at 20 per cent
• taxable savings income (included with any other income) that rises above the £35,000 Income Tax band, but falls within the £150,000 higher rate band, is taxed at 40 per cent
• taxable savings income (included with any other income) that rises above the £150,000 Income Tax band is taxed at 50 per cent
• if it falls on both sides of a tax band, the relevant amounts are taxed at the rates for each tax band

All of the above figures apply to the 2011-12 tax year.
You pay tax on your interest in the tax year that the interest is paid to you (or credited to your account) even if you’ve earned part of it in previous tax years.

jamesallen wrote: »

Around £2000 in interest. I don't think I'll go over the personal allowance - in which case am I correct in thinking I won't pay any tax on this? If I do go over I understand there is an introductory 10% savings interest tax rate.

Savvy_Sue

jamesallen wrote: »

One other question - say hypothetically I were to have twenty weeks this year earning £200 per week, what benefits would I accrue in that time from my NI contributions? Would I start building up pension entitlement?

I don't believe you would, because you wouldn't be paying enough weeks. However, you will at some point in the future be invited to 'make up' contributions for any 'short' years, and this will be one with less to pay.

Bear in mind that you now need fewer (less?) years of contributions for a full state pension. Whether it will be worth waiting for is another discussion.

jamesallen

Thanks I didn't know you could "top-up" former contributions. It's nice to know anything I pay now won't be totally wasted.

Savings are all onshore, accrued by parents/grandparents and originally designed for putting down a deposit on a house, though now I'll end up spending it all on university.

I was getting a little confused because the introductory savings band was "£0 to £2500" or something similar, but I now realise this means on top of the personal allowance.

And "fewer" is correct I'm pretty sure - never succumb to the temptations of "less":p

CLAPTON

are you saving currently being paid gross or net (i.e. have you completed R85s for the savings a/c where they are not in ISAs)

AirlieBird

Savvy_Sue wrote: »

I don't believe you would, because you wouldn't be paying enough weeks.

It has nothing to do with the number of weeks. HMRC/DWP receive no information as to how many weeks you've paid NI. A qualifying year will be a year in which you have received earnings of at least the annual level of the Lower Earnings Limit and on which you have paid, or being treated as paid, NI.