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UCL Careers Explains…Deductions from your pay if you work in the UK

By Skye A Aitken, on 10 December 2019

Written by Katharine Evans, Internships and Vacancies Officer at UCL Careers.

Under the Employment Rights Act, you have the right not to suffer ‘unauthorised deductions from wages’. There will be some automatic deductions from your pay that are authorised by law – namely income tax, national insurance and student loan repayments

Your employer is not allowed to make deductions unless:

  • It’s required or allowed by law, for example National Insurance, income tax or student loan repayments
  • You agree in writing
  • Your contract says they can – for example, some retail contracts have specific deductions
  • There’s a statutory payment due to a public authority
  • You have not worked due to taking part in a strike or industrial action
  • There’s been an earlier overpayment of wages or expenses
  • It’s a result of a court order

If you work for an employer who pays you a salary directly into your bank account you are likely to be earning via Pay As You Earn (PAYE). Deductions for Income Tax and National Insurance will be made automatically under PAYE.

Income tax is charged on most types of income, including salaries and wages from jobs. If you earn under a certain amount you will not charged income tax – this is called your Personal allowance. For the 2019/20 tax year (from 6th April 2019 to 5 April 2020) this is set at £12,500. You pay different tax rates depending on earnings:

  • Up to £12,500 = 0% tax rate
  • £12,501-£50,000 = 20% tax rate
  • £50,001-£150,000 = 40% tax rate
  • Over £150,000 = 45% tax rate

You only pay the respective tax rate on the income in each tax band. For example if you were to earn £55,000 then you only pay 40% tax on the £5,000 in that tax band. For the lower part of your earnings, you’ll still pay the appropriate 20% or 0%.

Student loans, bursaries and grants do not count toward your personal allowance. The above income tax brackets only apply to England, Wales, and Northern Ireland. If you’re working in Scotland for more than half the year, then this information won’t apply and the taxes you pay will differ- however chances are you’re working in London!

If you are an international student you may be subject to different tax rules. The rules differ from country to country so it is worth getting further advice to see if this applies to you, and to make sure you are not being double taxed – see https://www.taxguideforstudents.org.uk/types-of-student/international-students/residence-and-domicile/what-is-a-double-taxation-agreement#emin for more information on this.

National insurance contributions are a tax made up of both employer contributions and employee contributions You do not need to worry about the employer contributions.

The contributions help to build your entitlement to certain state benefits, such as the State Pension, Job Seeker’s Allowance, and Maternity Allowance.

National Insurance contributions aren’t worked out on an annual basis like Income Tax, instead they’re worked out on a weekly basis:

  • 12% of your weekly earnings between £166 and £962
  • 2% of your weekly earnings above £962.

If you want to work out how much Income Tax and National Insurance you should be paying you can use the gov.uk calculator – https://www.gov.uk/estimate-income-tax

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