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Taxes in United Kingdom

Employer Contributions in United Kingdom

National insurance

Employers pay National Insurance Contributions (NICs) on the earnings provided to employees. Earning includes cash and benefits. The amount is calculated and deducted through the PAYE (Pay As You Earn) system when doing payroll. NICs are paid to HM Revenue & Customs (HMRC). 

The employer contributes 15.05% on earning above £719 per month. The NICs funds national health service, pension, childcare vouchers, sick pay, maternity and paternity pay, shared parental pay and adoption pay.

Extra benefits tax

The tax deduction is calculated and taken by HMRC through the PAYE system. For benefits in kind, such as company car, private health insurance, childcare or travel and entertainment expenses, the employer must inform HMRC and pay tax and National Insurance.

Pension

Employers have to offer a pension scheme to all employees within three months of commencement of work on an 'automatic enrolment' base. It is up to each employee to join it or not. The employer doesn't need to enrol an employee in the pension scheme if they already have a plan that meets the automatic enrolment requirements. The same is valid if the employee is from another EU member state and is in an EU cross-border pension scheme.

The employer must inform the employee in writing when they have been enrolled in their workplace pension scheme. In it they should state:

  • The date they added the employee
  • The pension type
  • Who runs it
  • How much the employer and the employee contribute each
  • How to leave the scheme
  • How tax relief applies to the employee

From April 2019, an employer's minimum contribution is 3%, the employee one is 5%, and the government tax relief is 1%, for a total minimum contribution of 8%.

Employers must automatically re-enrol an employee in the scheme every three years if they have previously left the plan. The employee can leave again, but only once they've been re-enrolled.

Employee Contributions in United Kingdom

National Insurance

Employees pay National Insurance Contributions (NICs), which builds up the workers’ entitlement to social security benefits such as a Jobseeker Allowance and the State Pension. The deduction is calculated and deducted through the PAYE system by the employer at the time of doing payroll.

On earnings between £8,632 and £50,000 per year, employee’s contribution is 13.25% (£6,240 in 2021).

On earnings above £50,000 per year, employees contribute an additional 3.25%.

Income Tax

Income tax is collected by HM Revenue & Customs (HMRC) through Pay As You Earn (PAYE) system every time employees are paid. It’s the employer’s responsibility to deduct tax and NIC’s from an employee’s pay and inform HMRC about any taxable benefits in kind an employee receives.

The first £12,500 of the employees’ annual income are tax-free (personal allowance). Earnings over £100,000 yearly lose £1 of the personal allowance for every £2 earned over £100,000.

England, Wales & Northern Ireland Income Tax 2022

TYPERATEBAND
Basic Rate20%£12,571 - £50,270
Higher Rate40%£50,270 - £150,000
Additonal Rate45%Over £150,000

Scotland Income Tax 2022

TYPERATEBAND
Starter Rate19%£12,571 - £14,732
Basic Rate20%£14,733 - £25,688
Intermediate Rate21%£25,689 - £43,662
Higher Rate41%£43,663 - £150,000
Additional Rate46%Over £150,000

Pension

Employers must offer a workplace pension scheme to every employee, but it is up to the employee to take it or not. 

If the employee chooses to enter the pension scheme, their minimum contribution is 4% of their salary. The employer’s minimum contribution is 3%, and government tax relief is 1%, for a total minimum contribution of 8%.

This page was last updated on 
22 September, 2022,
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