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