First time workers
In this section we look at various tax issues that you might face when you first start work as an employee.
When you start work as an employee for the first time, there are lots of things to think about. In addition to settling into your job, you need to be aware of your tax responsibilities.
When you become an employee your employer is responsible for deducting income tax and National Insurance contributions (NIC) from your salary before you receive it. This system is called Pay As You Earn (PAYE). Both HM Revenue & Customs (HMRC) and your employer will give you documents (whether paper or electronic) relating to PAYE.
You can use this section as a checklist for things related to tax to consider when you first start work – we also direct you to further guidance.
HMRC have produced a short film which may be of help, called 'Starting Your First Job' and covers what to expect when you enter the world of work, including tax deductions and National Insurance contributions.
NOTE If you are starting self-employment, you will find useful information in our section on self-employment on the LITRG website.
You should always receive a payslip each time you are paid, although this can be an electronic copy. How often you get a payslip will depend on how often you are paid. It is usually weekly or monthly.
Whatever payment method your employer adopts, they must always provide you and the other employees with a payslip each payday. The payslip has to show a number of things, by law. The main ones are your gross wages (the amount before anything is taken off), the income tax and NIC deducted, and your net wages (the amount you actually receive). It should also show your National Insurance number (NINO), your PAYE code, your employer’s PAYE reference and how you will be paid, for example, in cash, by cheque or directly to your bank.
You should check the personal information on it carefully and the gross pay – have you been paid what you expected for the hours you worked?
Keep every payslip in a safe place – if you have paid too much tax, you will need these details to claim it back. If your employer does not give you a payslip each payday, you should ask for one.
There is an example payslip at 'understanding your payslip' in the ‘Useful Links section’ of the Low Incomes Tax Reform Group website. In order to check the deductions made by your employer, we suggest you refer to our factsheet, ‘what should I see on my payslip?’
Note that not all payslips look the same, but they should all contain similar types of information.
If you are starting your first job, you and your employer need to provide some information to HMRC so that they can decide what tax free allowances you are entitled to.
There is a procedure when starting a new job – your employer has to follow a ‘new starter process’. When you start work for the first time, you will not have a form P45, so your employer should ask you to complete a Starter Checklist (this used to be known as form P46).
The checklist asks you for relevant information; it will help your employer to allocate a tax code and work out the tax due on your first payday. HMRC will process the information you have provided on the Starter Checklist and where necessary, revise your tax code.
The Starter Checklist requests information that may affect the tax you will pay, like:
- your NINO;
- whether you have been claiming Jobseeker's Allowance or Employment and Support Allowance;
- whether you have got a second job;
- whether you are paying off a student loan.
It is important that you complete the Starter Checklist or provide the relevant information your employer has asked you for as soon as possible before your first payday, so your employer knows what tax code to use. If you do not provide this information, you could end up paying the wrong amount of tax.
Give the completed checklist to your employer. Do not send the checklist to HMRC. Keep a copy of the checklist for your own records.
The checklist is available on GOV.UK.
There is an illustration of how to complete a Starter Checklist in the ‘Useful Links’ section of the Low Incomes Tax Reform Group's website.
Form P60 is an annual summary of all your payslips. If you still work for your employer at the end of the tax year, they must give you a form P60 by 31 May. Note that a tax year runs from 6 April to 5 April, so the tax year 2018/19 ends on 5 April 2019. If you are working for an employer at 5 April 2019, they must provide you with form P60 by 31 May 2019.
Keep your form P60 as a record of your pay and the tax that was deducted. You must keep your P60 safe. If you lose it your employer may be able to give you a copy, which will be marked “duplicate”.
Form P45 is a record of your pay and tax deductions to date in the tax year. When you stop working for an employer, they should give you a form P45. It shows details like:
- your tax code and PAYE reference number;
- your leaving date;
- your wages so far in the tax year - 6 April to the following 5 April;
- how much tax was deducted from your wages.
A form P45 has four parts. Your employer sends one part (Part 1) to HMRC and gives you the other three (Parts 1A, 2 and 3). When you start a new job, give two parts (Parts 2 and 3) to your new employer and keep the other one (Part 1A) for your own records.
There is more information about form P45 in the page 'How do I check my coding notice'.
When you start work, HMRC issue a PAYE code to your employer, to tell them how much tax to take off your income. HMRC may also send you a copy of this PAYE code – this is your PAYE coding notice (form P2). Your payslips should also show the PAYE code that your employer is using and you can always check this in your personal tax account.
If you are undergoing the new starter process HMRC may not have enough information to issue a PAYE code. So, your employer may use an emergency tax code until HMRC have more information and issue the correct tax code.
There is more information on the PAYE coding notice and tax codes, including emergency tax codes, in the page 'How do I check my coding notice?'.
You pay income tax on your taxable income. Normally, income from employment is taxable. There is more information about what employment income is taxable in the page 'What income is taxable?'
Nearly everyone who lives in the UK is entitled to a tax free personal allowance. This is the amount of taxable income you can receive each year without having to pay tax on it. The basic personal allowance is £11,850 for 2018/19. Your PAYE code spreads your personal allowance equally over the tax year. There is more information about the personal allowance, and other allowances, in our ‘tax essentials section’.
For the 2018/19 tax year there are three main rates of income tax. You can check these in our ‘Tax Essentials’ section. Be careful because the thresholds are slightly different if you are a Scottish taxpayer.
There is more information about the tax rates and how they apply to your earnings in our page 'What tax rates apply to me?'
National Insurance contributions (NIC)
When you first start work, you need to tell your employer your National Insurance number (NINO) to make sure the income tax and NIC you pay are properly recorded. You will find your NINO on the NINO card or notification letter you received from HMRC when you turned 16.
There is more information about NINOs in our ‘tax essentials section’.
Most employees pay NIC on their wages – your employer normally deducts NIC together with income tax before paying you your net pay.
The NIC you pay can earn you the right to receive certain state benefits, including the state retirement pension. You can find out more information about NIC in our ‘tax essentials section’.
The page 'What National Insurance do I pay as an employee?' contains detailed information about employee NIC.
You may also find the factsheet ‘What are National Insurance contributions?’ helpful.
You may sometimes pay too much tax on your employment income through the PAYE system.
If you think you have overpaid tax in the current tax year, you should telephone HMRC initially, as it may be possible for them to amend your PAYE code – you would then receive your tax refund automatically through your wages.
If it is near the end of the tax year, or the tax year has ended, you will need to claim a refund directly from HMRC.
There are time limits for claiming tax refunds.
You can find more information about why you might have paid too much tax and how to claim a refund of tax in our ‘tax refund section’.
When you stop claiming Jobseeker's Allowance or Employment and Support Allowance to start work for a new employer, the Department for Work and Pensions (DWP) checks the amount of tax paid against your taxable income including the amount of Jobseeker's Allowance or Employment and Support Allowance you have received. They refund you any overpayment of tax due for the tax year up to the date you start your new job and issue a P45(U) or P45(ESA), which you should give to your new employer.
If you start a second job without giving up your other one you will not get a form P45 – you should ask your new employer for a Starter Checklist to complete, and let them know that you already have another job. You do not have to tell your second employer where you are working or how much you are earning. Your second employer will send the relevant information to HMRC and they should review your tax code.
HMRC should issue a separate tax code to each employer telling them what tax allowances you get. Your personal allowance will normally only apply to your main job.
To avoid paying too much tax you can ask HMRC to split your personal allowance between your jobs. For example, if you do not pay tax on your earnings from your first job you can use any spare personal allowance against your other job or jobs. Note that although HMRC send a separate tax code to each of your employers, they only send you one coding notice that should mention all of your employments.
If you have got several sources of income that are taxed through PAYE it can get confusing. Check your payslips carefully to make sure you are paying the right amount of tax and receiving the correct personal allowance.
For more information and examples concerning multiple jobs, take a look at the factsheet ‘Students with multiple jobs'.
If you change jobs
When you leave a job where you have paid tax through PAYE, your employer will give you a form P45. You should give Parts 2 and 3 to your next employer so they know what tax you have paid so far in the tax year.
If you lose your form P45, tell your new employer – they may ask you to complete a Starter Checklist. You should complete the Starter Checklist as soon as possible before your first payday, so your employer knows what tax code to use. Give the completed Starter Checklist to your employer and keep a copy for your own records. Do not send the checklist to HMRC.
If you change jobs often
It is especially important that you provide your employer with a completed Starter Checklist or form P45. If you do not provide this information, you could end up paying too much tax.
If you are leaving a job
Make sure you get a form P45 from your employer when you leave. Your employer should automatically give you a form P45 when you stop working for them. If not, ask for it – you are entitled to it by law.
If you are claiming benefits after leaving a job
If you are starting to claim Jobseeker's Allowance or Employment and Support Allowance after leaving your job, you need to give your form P45 to the DWP. They use it to pay you any tax refund you are entitled to either when your claim finishes or at the end of the tax year if you are still claiming.
If you have got a student loan to repay and you are employed, you normally repay the loan through your wages under PAYE. This normally happens automatically the April following your graduation, provided you have started working and are earning more than the repayment threshold.
HMRC provide your employer with the information they need to deduct the right amount from your wages. In order to calculate the correct repayment it is important that you note on the starter checklist whether you have a Plan 1 or Plan 2 loan, if you do not know what loan you have the Student Loans Company has a useful tool to help you.
Your payslip must show how much has been deducted. It is useful to keep all your payslips while you are repaying your student loan in case there is a discrepancy about the amounts of repayments you have made.
Under law, employees and ‘workers’ are entitled to certain rights, including a minimum wage.
You can find out more information about the National Living Wage and National Minimum Wage in our 'What is the National Minimum Wage for students?' page and in the factsheet ‘National Minimum Wage (NMW)’.
Pensions are a way of helping you to save up to pay for your living costs during retirement.
The UK Government gives tax relief on contributions you pay into pensions. The idea is to encourage you to provide for your own retirement, rather than rely on the state.
Growth on pension savings is generally free of tax. When pensions are paid out to you they are taxable, but you should be able to take some part of the pension as a tax free lump sum.
There is more information about pensions generally, including the state pension in the ‘tax essentials section’ and further information in relation to pensions and employees in our ‘employed section’.
You can find out more information about automatic enrolment in the factsheet ‘Pension Automatic Enrolment’.
You may be able to claim tax credits, Universal Credit or state benefits while you are working, depending on your circumstances.
You can find more information about tax credits and Universal Credit and who can claim them in our ‘tax credits and benefits section’.
What records should you keep?
You should keep the paperwork that contains details about your pay and tax, like:
- payslips and PAYE coding notices;
- forms P45 and P60;
- details of employment expenses;
- benefits in kind forms from your employer;
- information on any workplace pension scheme you join;
- information about any redundancy award or termination payment you get when your contract ends;
- notes of any tips or gratuities you get and any other taxable income or benefits that you have not already recorded somewhere else;
- details of any state benefits you have received.
If anyone (other than your employer) gives you benefits in kind for doing your job, you should keep a note of their name and address and what they gave you.
Why should you keep records?
You will need to refer to your records later if you ever need to:
- complete a self assessment tax return;
- claim a refund of overpaid tax;
- apply for tax credits and benefits (see the LITRG website)
How long should you keep records?
You should keep your records for at least 22 months from the end of the tax year they relate to. The tax year runs from 6 April to the following 5 April, so keep paperwork until at least 31 January nearly two years later. For example, you should keep records relating to the tax year 2018/19 (which ends 5 April 2019) until 31 January 2021 or longer if you are self-employed.