Guide to paying tax on your salary

Calculating the level of tax you'll be paying is a fundamental step to take if you want to know what your net income will be. It will also stop you getting a nasty surprise come the end of the month.

In the United Kingdom are two main taxes that you will have to pay directly from your salary; income tax and national insurance. For more information about these taxes go to Her Majesty's Revenue and Customs web site, www.hmrc.gov.uk

There are lots of good places that will help you work at the level of tax that you'll be paying. This site is one of the best around because it is the most comprehensive - www.listentotaxman.com

Other tax issues that you should be aware of are the various "P" documents that you will need.

P45

You get a P45 from your employer when you stop working for them. It's a record of your pay and the tax that's been deducted from it so far in the tax year. It shows:

  • your tax code, tax reference number and tax office
  • your National Insurance number
  • when you were last paid
  • your earnings in the tax year from all your jobs
  • how much tax was deducted from your earnings

A P45 has four parts - Part 1, Part 1A, Part 2 and Part 3. Your employer sends Part 1 to the Tax Office and gives you the other three. When you start a new job, or claim Jobseeker's Allowance, you give Part 2 and Part 3 to your new employer or to the Jobcentre. You keep the remaining one (Part 1A) for your own records.

Your employer should automatically give you a P45 when you stop working for them. If not, ask for it - you're entitled to it by law.

P60

Your P60 is the summary of your pay and the tax that's been deducted from it in the tax year.

Your employer should give you a P60 to keep as a record at the end of every tax year (which runs from 6 April to 5 April the next year). If your employer doesn't give you a P60 at the end of the tax year, ask for it - you're entitled to it by law.

You might need it:

  • to complete a tax return, if this applies to you
  • to claim back any tax you've overpaid
  • to apply for tax credits

You may also need it as proof of your income if you apply for a loan or a mortgage - so it's important to keep all your P60s safely.

P11D

Your employer uses form P11D to tell HMRC about the value of any 'benefits in kind' they've given you during the tax year. This means benefits or expenses that effectively increase your income, like:

  • a company car
  • private medical insurance
  • interest-free loans

Your employer will only declare them if you've earned at least £8,500 in the year, including the value of the benefits. They will work out how much each benefit is worth, record it on the form and send it to HMRC. They'll also give you a copy, which you'll need for your records or if you complete a tax return.

If you apply for a loan or mortgage, banks and building societies will accept form P11D as proof of extra income.

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