How do I work out my tax?
If you are an employee, your employer takes income tax and National Insurance contributions (NIC) off your pay before paying you. Your employer sends the tax and NIC to HMRC. This system is called Pay As You Earn (PAYE). You need to be able to work out your tax, so that you can check your employer is deducting the right amount of tax from your pay.
PAYE spreads your tax and NIC over the tax year. Your employer collects tax using a code number, provided by HMRC direct to your employer while a copy of the code number and how it has been calculated is sent to you. For further information see our page How do I check my coding notice?.
The tax collected under PAYE is an estimate, and is not necessarily the exact amount you are required to pay. However, for many employees there will be little or no difference between the amount of tax deducted under PAYE and the amount of tax actually due on their employment income.
Remember that the tax year runs from 6 April one year to 5 April the next, for example, the tax year 2019/20 runs from 6 April 2019 to 5 April 2020.
If you live in Scotland and are a Scottish taxpayer, you will pay Scottish income tax on your employment income. Different income tax rates and bands apply to your non-savings and non-dividend income. There is more information in our pages on Scottish income tax. UK tax rates and bands apply to your savings and dividend income.
If you live in Wales and are a Welsh taxpayer, you will pay Welsh income tax on your employment income. The rates for Welsh income tax apply to your non-savings and non-dividend income. UK tax rates apply to your savings and dividend income.
Working out your tax position is basically a four-stage process, which we set out in the tax essentials section of our website. In stages one and two, you have to work out your taxable income and any allowances or deductions you are entitled to.
In the employed pages of our website we provide further information on:
- stage one – taxable income, including benefits and expenses; and
- stage two – reliefs and allowances.
that relate specifically to employees.
You have to pay tax on any other taxable income that you have in the tax year, too. So, if you have any other taxable income, you need to include this in your calculations.
HMRC have online tools to help you check the tax you are paying in the current year and have paid in past tax years. These can be found on GOV.UK. In order to access these services you need to have a Government Gateway account.