The end of tax year 2017 marks the time that you need to work on your tax return. To avoid penalties, it is important that you understand PAYE Tax and other related information, including tax refund that will give you extra money to spend. Doing so is also one way to determine if you paid more than or not enough tax.
How Does the PAYE Scheme Works: The basics
Tax on employee income is deducted by means of the PAYE scheme, a system for collecting tax that is used in the UK. It involves three parties—you, your employer, and HMRC.
HMRC will calculate a tax code for you and forward the information to your employer. Based on your PAYE or tax code, tax from your taxable income is directly deducted by your employer from your pay. It is your employer who will work out how much tax will be deducted from your weekly or monthly pay.
For instance, if your tax code is L525, the last 3 digits will be multiplied by 10 to determine how much you’re allowed to earn before tax is paid. This means you can earn £5,250 tax-free. Anything you earn above this amount will be taxable at various rates.
Whenever appropriate, National Insurance contributions will also be deducted on top of the PAYE tax.
How Does the PAYE Scheme Works: Payslips
For each time you are paid, your employer will give you a payslip.
It must contain:
- Your gross income – wages before any deductions are made
- Individual or total amount of fixed deductions like trade union subscriptions
- Individual amount of tax deductions and any other variable deductions
- Your net income – the total amount after deductions
- Amount of any part – payment wage and the method of payment, such as cash payment credited to a bank account
Your payslip may or may not contain your tax code, National Insurance number, pay rate, and additional payments. In the event that your tax code does not appear on your payslip, ask your employer or HMRC about it. This way you will know if the right amount of tax is deducted from your pay and whether or not you can claim tax back.
Who doesn’t need a payslip?
- Even if you are working for a company or business in the UK, your employer is not obliged to provide you with a payslip if:
- If you work as a contractor, freelancer, or a worker but not necessarily an employee
- Employed in the police service or work as a merchant seaman
- You are a share fishing master or crew member
How Does the PAYE Scheme Works: The tax year end
At the end of tax year 2017 or the year before that, you should receive a form P60, the ‘end of year certificate’ or its equivalent by 31 May. As long as you’re employed at 5 April, you should receive the form at the specified date because employers are required to give the form to all employees on their payroll.
The form P60 will show your pay, tax deducted, and the final tax code operated. The same information will be forwarded to HMRC by the employer.
Calculating a refund or tax owed
You can check how much income tax you paid the previous tax year and determine if you qualify for a tax refund. Anyone who overpaid tax is eligible for a rebate under tax refund UK rules.
Using your most recent payslip or P60 and NI number, you can use the online calculation system on Gov.UK to check for the amount of tax you paid.
Better yet, consult with experts on tax refund for help with claim tax back and/or more information about tax refund UK laws. Check Out PAYE Tax Refunds to make sure you have all the information you need.