What to expect as an employee
Tax Guide for Employees guide
It is important to know what to expect as an employee – otherwise you could find yourself landed with an unexpected tax bill.
Knowing that you are an employee and that your employer is doing the right things as regards tax is vital. A lot hinges on this – much more than just your employment rights.
As an employee, your employer is responsible for deducting tax and National Insurance from your pay. The employer is also responsible for telling HMRC about any taxable benefits in kind you receive – see benefits in kind.
What you need to know
Where your tax code comes from
Your employer should use a PAYE tax code to decide how much tax to deduct from your wages. This tax code may have been issued by HMRC, but more usually the employer decides which tax code to use from the P45 form (if you have come from another employment). If this is a new or additional employment, the New Starter Checklist will be used (under RTI, this replaces form P46).
How much tax-free income are you due?
Employees who are resident in the UK are entitled to an amount of tax-free income. For the tax year 2016-17 this is £11,0000 (£10,600 for the tax year 2015-16). There are additional amounts due for people who are blind and, for years before 5 April 2016, people who were born before 6 April 1938. See the personal allowance section for more details.
There is only one amount of tax-free pay to cover all your sources of taxable income.
Allowances cannot generally be transferred to anyone else. There are some limited exceptions to this rule:
- From 10% of the basic personal allowance can be transferred between spouses or partners in limited circumstances
- The blind person’s allowance and the married couple’s allowance (now only available to couples, one of whom was born before 6 April 1938) can also be transferred
Forms your employer should give you
As an employee you should have a contract of employment. This is usually in writing, but may be oral.
You should be given payslips to show your gross and net pay and any deductions. This is particularly important if you later have problems with your employers such as failure to pay deductions to HMRC or a dispute as to whether you are employed or self-employed.
You should also be given form P60 at the end of each tax year, and form P45 if you leave your employment.
There is more about these basic forms in the income tax section.
What might go wrong and what to do about it
There are a number of things which may go wrong. Some of these are listed below, together with a link to the section of the guide dealing with the issue.
- Your employer may be using an incorrect tax code – see Understanding your tax code
- You have changed jobs or taken an additional job and think you may not be paying the right tax – See Changing jobs and New employment section
- Your employer may not be paying the tax and National Insurance deducted to HMRC – see Problems with employers
- Your employer could be treating you as self-employed, to make you liable for any tax due -see Problems with employers
- You have received a bill from HMRC for unpaid tax – see Underpayments of PAYE
- You think you are entitled to tax relief for work expenses – see Work expenses
- You consider you are due a tax refund – see Refunds for employees
- You have been made redundant or are facing redundancy