Wages and taxes explained

When you get a paid job you will earn wages for the work you do. This is your own source of money. Everyone has a set amount of money they can earn each year before having to pay tax, this is known as a Personal Allowance.Currently in 2019/2020 the  standard Personal Allowance is £12,500, which is the amount of your income you do not have to pay tax on.Your personal allowance is normally the standard amount however if you are blind you may claim Blind Person's Allowance giving you a larger personal allowance.  Other reasons for a different amount include a very high income above £100,000 or if you claim Marriage Allowance

After you have reached your personal allowance you are taxed on the amount above your personal allowance. To work out your tax they use your tax code which is on your wage slip.  The amount of tax you pay depends on your income but for most people it is 20% of the amount above your personal allowance. From your wages you pay Tax and National insurance;to the government.  

National insurance pays those who most need it due to low income to be able to claim benefits. This is 'free' money given at a set amount due to needs and there are different benefits like Disability benefits to help pay for the extra costs due to disability. There is Child benefit to help with the costs of bringing up children and there is Tax Credits for those on the lowest income to help with living costs, this is just some of the benefits available to those who need them. This can only be offered because people all contribute towards the system as they work making for a supportive and fair society.

Tax helps may for vital community services for our society to function and to keep us safe and well. The tax pays for the NHS health service such as for hospitals and treatments and wages for doctors and hospital staff. It pays for education such as schools and colleges. It pays for public services like the police and to help control and tackle crime, it pays for ambulances and the fire service. It ensures when we get older and retire that the government pay a small pension to older people. 

Tax and National insurance is taken out of your wages (deduction), the money you get. When you work you get a pay slip this is a short summery of the money you have earned, the hours you have worked and any money taken out. It will show you Gross Pay: this is the total money earned before any deductions so before any money is taken out for example to pay for taxes. The amount of money you take home after costs and deductions like taxes is called your NET pay. This is paid into your bank account typically once a month although some people may find they are paid weekly. 

Here are some short Videos from the government department HMRC that collects the tax. The department also have a set Minimum wage that is the lowest a paid employer can earn her hour from their employer to keep work fair and ensure people can stay out of poverty and can manage vital living costs. 

When you get your wages it is important to budget. This involves planning your spending depending on the amount you earn and not over spending but being able to cover your bills without getting into debt.  

Debt is when you have over spent and owe someone else money that typically you have to pay interest on (additional money). This means you could end up owing lots of money and not being able to afford your bills or to maintain your lifestyle. So you may not have money for the essentials like food and rent an will not be able to spend money enjoying yourself like going out with friends.   

HMRC Tax Facts Starting your first job 

HMRC UK Tax facts 

HMRC Understanding gross and net pay 

Subscribe