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 are 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 make 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), i.e. the money you get. When you work, you get a payslip. This is a short summary 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 per 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 and 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.
Sign up to get the latest on sales, new releases and more …