| Income tax is deducted by an employer from the | | | | the tax inland revenue PAYE scheme other income is |
| gross salary of an employee according to the inland | | | | also taxable and declared on the annual tax income |
| revenue tax percentage applicable to those earnings | | | | returns. Items declared on the income returns would |
| taking into account personal tax allowances and reliefs | | | | include income from savings, dividend income, pension |
| available. Income Tax percentage rates for Employees | | | | and trust income, any rental income and self employed |
| All employers in the UK pay employees through the | | | | earnings. Working tax credits are not classed as |
| inland revenue tax PAYE system and are required to | | | | taxable income. Determining how much is tax on |
| deduct both tax on income and national insurance | | | | income from savings is achieved by applying the |
| contributions from the gross wages. The net wages | | | | income tax percentage applicable after deducting |
| received are by the employee after the PAYE | | | | gross earnings from the tax inland revenue threshold |
| deductions. Gross pay is the total amount the | | | | limits. If non savings income is less than the £2320 |
| employee has earned in that pay period including the | | | | starting rate for savings or if savings and dividend |
| basic wages plus any tips or bonuses received but | | | | income is the only source of income then the savings |
| excluding non taxable expenses. The gross pay on | | | | income tax percentage is 10 per cent up to the |
| which an employee is assessed from tax and national | | | | £2,320. If non savings income is above the |
| insurance includes taxable benefits received by that | | | | starting rate then all of savings are taxed at the 20 |
| employee such as private medical care or the | | | | per cent basic rate. When earnings exceed the higher |
| provision of a company car. Non taxable expenses | | | | tax threshold of £34,800 the income tax |
| being business expenses the employee has incurred | | | | percentage on savings increases from 20 per cent to |
| carrying out the duties which are reimbursed by the | | | | 40 per cent and on dividends from 10 per cent to 32.5 |
| employer. Having established the total gross pay the | | | | per cent. In effect how much is tax is determined by |
| employer calculates how much is tax on income and | | | | the highest tax percentage applicable to income. |
| deducts tax on a cumulative basis taking into account | | | | National Insurance for Employees While tax on income |
| the employee personal allowance indicated by the tax | | | | is calculated on a cumulative basis national insurance |
| code. Business expenses incurred by an employee | | | | contributions are calculated as a percentage of gross |
| which are not reimbursed by an employer may be | | | | salary in a specific pay period under the tax inland |
| claimed as a tax relief. Such items might include the | | | | revenue system. Employees under the age of 16 or |
| difference between the UK allowance on mileage of | | | | over the national pension age of 65 do not pay |
| 40p per mile and the amount paid by an employer is | | | | national insurance, they are exempt. There are other |
| less than 40p and also working from home expenses. | | | | circumstances where an employee pays a different |
| The tax code tells the employer how much is the UK | | | | rate of national insurance. For example a married |
| allowance to free pay the employee is entitled to in the | | | | woman who is widowed and possess a certificate |
| financial year. For example a 2008 tax code of 603L | | | | may pay national contributions at the rate of 4.85 per |
| would indicate annual tax free earnings of £6,035. | | | | cent of gross wages on earnings above the primary |
| That does not mean the employee will not be | | | | starting threshold. Employees with a second job where |
| deducted tax until earnings reach that figure as when | | | | the earnings are above the upper earnings threshold |
| calculating the tax on income the employer is required | | | | would only pay 1 per cent insurance. For most people |
| to spread the tax free allowance evenly over the pay | | | | who are employed the national insurance contribution is |
| periods. On earnings above the tax free allowance the | | | | according to the rates set in table a and the amount |
| 2008 tax percentage is 20 per cent up to what is | | | | payable is 11 per cent of gross earnings about the |
| known as the higher earnings threshold which under | | | | primary threshold and on all earnings up to the upper |
| 2008 tax rules is £34,800 per annum. Gross | | | | earnings threshold from which point the percentage |
| salary which is above the higher earnings threshold is | | | | drops to 1 per cent. In 2008-09 the primary threshold is |
| subject to a 2008 tax rate of 40 per cent. In addition | | | | £105 per week. |
| to the tax on income deducted by an employer under | | | | |