How do you work out your tax if you are an employee? 

In this part of our Starting Work guides we look at:

How are employees taxed?

Nearly every UK worker starts the payroll year with a tax-free personal allowance.

For the 2022-23 tax year (tax years run 6 April to 5 April), the basic PAYE tax code is set at 1257L.

Tax codes have different suffixes to show different things, such as whether you are a Scottish taxpayer, non-resident or on an emergency code, see What is the 2022/23 PAYE tax code? 

When you start work, if you do not have a P45 from previous employment, your employer will ask you to complete a Starter form and they can then use the information you provide to set your PAYE code for that employment.

Basic example

Freya has one job and earns £15,000 per year. She is paid monthly. Her gross monthly pay is £1,250.

She is entitled to a full personal allowance of £12,570.

Her National Insurance Contributions 'NICs' are calculated separately.

Her monthly net pay is: 

If Freya took a second job, her tax-free PAYE code would be allocated to just one employment based on her earnings. She would then expect that her second job would deduct tax at 20%. For NICs, the limit applies to each job. If she earns less than £190 per week (£242 per week after 5 July 2022) in her second job there are no further NICs to pay. If she earns more than £190/£242 per week in her second job she will have NICs calculated as above.

For high earners with multiple jobs there are limits to the total amount of NICs payable. See National Insurance: what's the maximum payable?

Next guide in this series

Useful guides on this topic

Starting work: Self-employed or employed: what's the difference?
If you are finding work what is the difference between being employed or self-employed?

Special rules for different types of worker
Starting work, what kind of worker are you? What are the special rules for certain types of workers?

Agency or Umbrellas
If you obtain contract work via an employment agency you could find yourself accidentally caught up in an illegal tax avoidance scheme. If you are not a tax expert you might have little idea how agencies should be accounting for tax and National Insurance on their payments to you. HMRC has now created a basic tool to help you detect whether you are in an illegal scheme. 

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