If you worked in any of these countries, you could be due a Tax Refund

Pay As You Earn Taxes in the UK: Your Guide

Your Guide to the PAYE Tax System in the UK

Read our complete guide to UK PAYE taxes below or download it here straight to your PC or smartphone.


1. Intro                                                   

2. How much do I pay?                              

3. Income Tax Rates and Bands                 

4. National Insurance Contributions             

5. Your Payslip Explained                        

6. State Benefits                                     

7. Marriage Allowance                            

8. Income Tax for Non-residents             

9. Living Abroad                                    

10. Do I Need to File a Tax Return?             

11. Leaving Employment                          

12. Getting a Tax Rebate                          

13. Claiming A Rebate                              



1. Intro    



Most workers in the UK pay income tax through the PAYE (Pay As You Earn System) system. Your employer uses this to withhold income tax and national insurance contributions from your wages which are paid directly to HMRC (HM Revenue & Customs).


Tax Code

Your tax code is issued by HMRC and is used by your employer to work out how much income tax you should pay. This tax code changes every year and you may be paying the incorrect amount of tax if you’re on the wrong tax code. You’ll find this code on your payslip!

You are usually entitled to claim a rebate if you’ve paid too much.


The average UK tax rebate is £963



2. How Much Do I Pay?


The amount of income tax you pay depends on:

1. How much you earn over your Personal Allowance

2. How much of your income falls within each tax band



Tax-free Personal Allowance

The Personal Allowance is the amount of income you are entitled to receive free of tax each tax year. This amount changes each tax year. The standard personal allowance for the current 2016/17 tax year (this is the period from 6 April 2016 until 5 April 2017) is £11,000.

Your Personal Allowance may be higher if you claim Marriage Allowance or Blind Person’s Allowance or smaller if your income exceeds £100,000.



3. Income tax rates and bands for 2016/17:




 Personal Allowance

 Up to £11,000


 Basic Rate

 £11,001 - £32,000


 Higher Rate

 £32,001 - £150,000


 Additional Rate

 Over £150,000



Note: If your gross income exceeds £100,000, your personal allowance is reduced by £1 for every £2 earned above £100,000.




4. National Insurance Contributions

Your employer will deduct National Insurance Contributions, which you will see on your payslip. National Insurance helps you qualify for certain benefits, including the state pension, and you'll pay it if:


  • You are 16 or over
  • You're an employee earning above £155 pw
  • You're self-employed and make a profit of £5,965 or more per yr 



National Insurance Contirbutions are paid towards the cost of benefits including:

  • Basic state pension


  • Additional state pension


  • New state pension


  • Contribution-based jobseeker’s allowance


  • Contribution-based employment and support allowance


  • Maternity allowance


  • Bereavement benefits


Note: The amount you pay depends on your employment status and level of income. As an employee, you pay Class 1 National Insurance Contributions.



Rates for 2016/17:


  Weekly Pay 

  Class 1 National Insurance rate 

  Below £155




  Over £827 



Note: You’ll pay less if you’re a married woman or widow with a ‘certificate of election’ OR if you’re deferring National Insurance contributions because you have more than one job.


You must tell HMRC if you:

  • Change your personal details (name, address, etc)


  • Become self-employed/stop being self-employed




If you become unemployed or can’t work due to illness, you may be able to apply for National Insurance credits to fill any gaps in your contributions.


The average UK tax rebate is £963





5. Your Payslip Explained


Confused by all those terms on your Payslip? Below is a sample payslip explaining the most important terms and their meanings:



Get your Guide to PAYE Taxes in the UK




6. State Benefits

There are certain benefits you must pay tax on, and others are state-free.


Benefits you pay tax on:


  •  State Pension


  • Jobseeker’s Allowance


  • Carer’s Allowance


  • Incapacity Benefit (from the 29th week you get it)


  • Bereavement allowance


  • Widow’s Pension


  • Widowed Parent’s allowance


  • Pensions paid by the Industrial Death Benefit scheme


  • Employment & Support Allowance (contributions based)


Tax-free state benefits:


  • Working tax credit


  • Child tax credit


  • Housing benefit


  • Guardian’s Allowance


  • Pension credit


  • Winter fuel and bonus scheme


  • Disability Living Allowance


  • Employment and Support Allowance (income related)


  • Maternity Allowance




7. Marriage Allowance

If you get married, you may want to apply for the Marriage Allowance. This lets you transfer £1,100 of your Personal Allowance to your spouse or civil partner and this will reduce their tax by up to £220 each tax year.   You can also backdate your claim to the date of marriage.  


To be eligible for this allowance, your partner must earn between £11,001 and £43,000 a year before tax and you must not earn anything or your income must be under £11,000.  

If you or your partner was born before 6 April 1935, you may benefit more from Married Couple’s Allowance.




8. Income Tax for Non-Residents

The Statutory Residence Test can help you determine whether you are resident or not for tax purposes. Non-residents only pay tax on their UK income - they don’t normally pay UK tax on their foreign income.

Residents pay UK tax on all their income, no matter whether it’s from the UK or abroad. However, there are special rules for UK residents whose permanent home ‘domicile’ is abroad.



Non-residents usually don't pay tax on: 

  • State Pension


  • Interest from UK Government securities ‘Gilts’




9. Living Abroad

You may be taxed on your income in the UK and in the country you reside in. However, the country you’re resident in may have a double taxation agreement with the UK in which case you may not have to pay tax in both jurisdictions. Make sure you check if you're country has a double taxation agreement with the UK. 


Depending on a double taxation agreement you can:

  • Apply for partial or full relief before you’re taxed


  • Apply for a refund after you’ve been taxed


Taxback.com can also help you determine this when applying for your UK tax back.



Get your Guide to PAYE Taxes in the UK





10. Do I Need to File a Tax Return?

Most employees in the UK pay tax through their company’s payroll system and are not required to file a Self-Assessment tax return.


Reasons you may need to file:


  • You’re self-employed


  • You’re in partnership or a company director


  • You’re a higher rate taxpayer with annual income of £100,000 or more


  • You have investment income of £10,000 or more


  • You have capital gains in excess of the exempt amount (£11,100 for the 2016/17 tax year)


  • You earned foreign income


  • You have rental income


  • You have a tax liability but no PAYE source of income


Note: You should tell HMRC if you think you need to file a tax return, however sometimes HMRC issues tax returns for completion based on information from third parties (e.g. employers of expatriates).

If you're unsure whether you should file a tax return or not, you can contact Taxback.com.




11. Leaving Employment

If you leave your job your employer must give you a form called a P45. This is a document which shows your gross pay and the amount of the tax which was deducted at source from your pay during the tax year.


It shows your:


  • Tax code and the PAYE (Pay As You Earn) reference number of your employer


  • National Insurance number


  • Leaving date


  • Earnings in the tax year


  • How much tax was deducted from your earnings


Your employer will submit this information directly to HMRC on the last date that they pay you. If you do not get a P45, you should request one from your employer and keep it safe, as you may need it to claim back any overpaid PAYE income tax. HMRC may not be able to refund any tax refund due without it.

It’s important to have a P45 if you start a new job and it may also help you if you want to claim a tax rebate.




12. Getting a Tax Rebate

1 in 3 people who work in the UK are entitled to a tax rebate and there are several reasons why.


You may be able to claim a tax rebate if you:

  • Arrive or leave the UK during the tax year


  • Work less than the full tax year


  • Have been working on a casual basis


  • Had more than one job during the tax year


  • Are a student working in the holidays


  • Sent a tax return and paid too much tax


  • Overpaid tax on pension payment


  • Bought a life annuity


  • Live in one country and earn income in another


Get your Guide to PAYE Taxes in the UK



13. Claiming Your Rebate


The average rebate is a whopping £963 so it's always worth your time to apply! To apply for a UK tax rebate you will need either your P45 or P60 and details of any work-related expenses.

No time like the present! You can find out now if you’re due a tax rebate by using our online tax calculator or email info@taxback.com for more info.

The average UK tax rebate is £963



Scroll down to download the complete guide to your smartphone or PC by using your name and email below!                  

About The Author

Ciara Kennedy - Digital Content Writer @ Taxback.com

Ciara is our Digital Content Writer at Taxback.com. Since graduating in Journalism and Visual media, Ciara has worked in online marketing in Ireland and Australia and loves writing in all its forms.

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