- Different types of tax
- Income Tax
- Value Added Tax (VAT)
- Other taxes
- Starting work
- Pay As You Earn (PAYE) forms
- Personal Allowance
- Calculating your Personal Allowance
- National Insurance
- Further Support
- Help lines
Tax can be a difficult thing to get your head around and there are lots of different taxes to learn about. The two main types of tax are Income Tax and Value Added (VAT).
Income tax is a tax on your income and this is normally deducted from:
- your wages
- profits if you’re self employed
- some benefits
- interest gained in bank and building societies
- private and state pensions
- shares or dividends
Vat is a tax on the final consumption of certain goods and services. The standard VAT rate is 17.5% and this is usually included in the price you pay for goods and services before you reach the checkout. Some retailers add another line on your receipt to show the VAT element. This does not mean you’re being charged extra; it just notifies you how much of the product or service is made up of tax.
There are other forms of tax that you should be aware of such as:
- Stamp Duty - Tax on property and shares
- Capital Gains – Tax added if you give away or sell an asset that's gone up in value
When you leave school and start work for the first time your employer will ask you to complete a form called a P46. This is so your employer can deduct the correct amount of tax from your pay. Once you've given your employer your P46, they will be able to check whether you should pay tax. If you should, your employer will start to deduct tax from your wages. This system of taking tax directly from your pay is called Pay As You Earn (PAYE). You will also be given a tax code. The code is made up of numbers and a letter. You can learn more about tax codes on the Inland Revenue site.
A P45 is a record of your pay and tax deductions and you should receive this from an employer when you stop working for them. This record includes:
- your tax code
- your leaving date
- your wages for the tax year
- the amount of tax deducted
A P60 is an annual summary of all your payslips for a tax year. You should keep this form as it is a record of your pay and the amount of tax deducted.
A tax year begins on 6 April one year and finishes on the 5 April the following year. In each tax year you can receive a certain amount of income which is free from tax. This amount is called your Personal Allowance.
| Tax Year | Personal Allowance |
|---|---|
| Apr 6th 2008 - Apr 5th 2009 | £5,435 |
Calculating your Personal Allowance
Normally under the PAYE system the Personal Allowance is divided by the total number of pay days you will have in the tax year. So:
- if you are paid monthly, the allowance is divided by 12
- (£5,435 divided by 12 months = £452.92 a month)
- if you are paid weekly, the allowance is divided by 52
- (£5,435 divided by 52 weeks = £104.52 a week)
National Insurance is also something you will have to pay. Before your 16th birthday you will receive a national insurance card and number. Like income tax, national insurance contributions depend on the amount you earn, and this is calculated and deducted by your employer.
If you want help with forms that you receive from the Inland Revenue or your employer, arrange to call into your local Connexions Centres where a Personal Adviser can help you and give you more information.
National Insurance Registration Service - 0845 91 57006 (Mon - Fri 8:30am - 4.30pm)
Inland Revenue
Offers information on everything you need to know about National Insurance.
Department for Work and Pensions
Information about National Insurance and how to apply for a NI number.
HM Revenue & Customs
Further information on National Insurance and Income tax.
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