Tax Code: Calculate your net salary in the United Kingdom

Tax Code

Yesterday the letter with my tax code for the 2014-2015 fiscal year arrived, and I don’t think many people know how to calculate their net salary or have thought about it lately.

I’ll make it quick and easy for you. There are three important things you need to look at on your payslip, aside from the amount that the company pays you: the Tax Code, PAYE, and the NIN (National Insurance Number).

What is the TAX CODE?

This code is different for almost everyone, as it shows how much you can earn without paying a percentage of the PAYE. In the United Kingdom, the first annual £10,000 are exempt from tax and you receive them directly (if you don’t count Social Security).

That’s why the Tax Code is often something like 944L, which means this person has a ‘personal allowance’ (free from taxes) of £9,440 per year. The letter “L” determines the age range. Another example: if your company gives you other benefits (mobile phone, private health insurance, car, etc.), this extras will be deducted from your tax allowance and the Tax Code will change to something like 165T, which would mean that the first £1.650 are free of taxes.

As each job is different, each person can have a different Tax Code. All amounts exceeding this limit are used for your contributions and must be used to pay taxes (PAYE), so two people with similar salaries will have specialized codes: if one has a business car and the other doesn’t, one will have to contribute more than the other.

25/04/15 UPDATE

For the 2015-2016 fiscal year, the Personal Allowance was raised to £10,600, so the starting TAX CODE is 1060L.

What is PAYE?

This tax is applied to quantities that go over your “personal allowance”. For example, if you have an annual salary of £16,000, you would only play taxes on the £6,000 that exceed the first £10,000 (if this isn’t reduced for the reasons I explained in the previous section).

The first £32,010 that exceed your tax code will have a tax of 20% applied to them.

For amounts from £32,011 to £150,000, 40% will be withheld.

And for all salaries greater than £150,000, a tax of 45% will be applied.

More info about these rates: www.gov.uk/income-tax-rates

What is the NIN?

Finally, we have NI, National Insurance, the name for Social Security in the United Kingdom. If you don’t have a subsidy or disability, there are two main rates. The first is for people who earn between £111 and £805 a week: 12% of the salary is withheld. Those who earn more have 2% extra tax applied.

Visit this website to check the NI contribution tables: www.hmrc.gov.uk/rates/nic.htm

In summary…

If you have an annual salary of £25,000 gross per year, you will have to pay 12% for Social Security and 20% of the £15,000 above your tax code.

What if I have a temporary job? How do I claim money back if I’ve paid more taxes than I should have?

Maybe you’re one of the people who doesn’t know how much you’ll make working in the United Kingdom for the year, or maybe you change job every few months. In those cases, once the fiscal year is over in April, you can reclaim the excess taxes that you’ve paid (or that the company withheld from you). To process the tax refund you need to send the P45 or P60 form (which your employer should give you) to HMRC.

To claim a tax refund: www.gov.uk/claim-tax-refund

But if all of this is too difficult to calculate on your own, I’ll leave you with two links where you can calculate your net salary in the United Kingdom by week, month, or year:

http://listentotaxman.com/index.php

http://www.moneysavingexpert.com/tax-calculator/

If this was useful or you see a mistake, please leave a comment!

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