Career Guide

The tax year
  
The official tax year starts on the 6th of April each year and ends on the 5th of April the following year.
 
That might seem odd, but it's the way the government works.

The tax year is important because how much income tax you pay depends on what you earn in the tax year, not the calendar year. So, if you get your very first job in January 2008, you may not have to pay much tax in the tax year 2007-08 because you probably won't have earned enough.

But remember that there are rules which your employer has to follow. Sometimes, you may have tax taken from your salary, but will later get a rebate (some tax will be returned to you) after the tax year has ended.
  
 
 
Deductions from your wages or salary
 
 If you are an employee, your employer must take income tax and your National Insurance Contributions (NICs) from your wage or salary before you are paid. This system is called PAYE (Pay As You Earn).
 
The amount of income tax and national insurance contributions you pay depends on how much you earn. In general, the more you earn, the more income tax and NICs you pay.

Tax and NIC rates (given as percentages) change fairly frequently. Current rates are shown here on the HMRC website.

The DirectGov website has more information about deductions from your pay and the PAYE system.
 
  
 
Allowances

It might seem like the government wants a share of all of your income, but it's actually more generous than that.

Everyone is allowed to earn a bit of income before the taxman takes his slice. This is known as your 'personal allowance'.

Allowances change almost every year (more or less - though not always - in line with inflation). You can get details about the latest allowances here.
 
  
 
Tax forms

If you're employed - for example you work for a company or an organisation - you'll be given certain forms during the course of the year, or when you stop working for your employer.

P60 - you get this form at the end of the tax year to show you how much tax and national insurance has been deducted from your pay. It's important to keep your P60 safe along with your pay slips.

P45 - your employer will give you this form when you stop working for them. Keep this form safe because you'll need to give it to your new employer when you start your next job.

It's a good idea to remember what each of these forms are and when you get them because they will keep cropping up during the whole of your working life.
 
 
 
What if I'm self-employed?
 
 When you work for yourself, you have to tell HMRC what you've earned each year and then pay them the appropriate tax and NICs by a certain deadline.
 
 You complete a self-assessment tax return each year. You'll find answers to all your questions about self-assessment and being self-employed here.
 
 
 
 National Insurance

Income tax is used to pay for things such as education, roads, transport, defence and so on.

On the other hand, National Insurance pays for the National Health service and your state pension. So, the government takes a second bite at your salary or wages to pay for these.
 
Like income tax, you pay a percentage of your income for National Insurance contributions (NICs). And, your employer also has to pay a contribution for you too.

You don't pay NICs until you're earning more than about £100 a week. Details of current rates and allowances for NICs are shown on this page of the HMRC site. 
  
 
VAT
  
We all pay a lot of tax in VAT (Value Added Tax) when we buy goods and services. 
 
 The price of items you buy in shops or on-line includes VAT where applicable. However, some items such as food, are not subject to VAT.
 
 The current standard rate of VAT in the UK is 17.5% for most products. But some items, such as electricity, are charged at a lower rate. 
 
 When you're self-employed, you might wish to register for VAT in order to claim back some of the tax you've paid on goods and services you buy for your business. This can save you some money. But you will have to be VAT registered if your business turnover is more than £64,000 per year.

More details about VAT are available here.
 
  
 
 
  

Tax and National Insurance

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This page gives some basic details about tax and national insurance, and links where you can get more information.

HMRC
 
The organisation responsible for collecting taxes in the UK is HM Revenue and Customs (otherwise known as HMRC).
There used to be two organisations involved in collecting taxes - The Inland revenue and HM Customs and Excise. However, they merged into one organisation in 2005.

HMRC is also responsible for paying tax credits and child benefit.

HMRC have a website where you can get more information and can sign up to make tax returns etc on-line. 

However, the HMRC site is not as helpful as it might be - trying to find something out as basic as 'what is income tax' is difficult to say the least.

If you need some answers to basic tax questions, you may find more help at the Directgov website.

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