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Employment Taxation for Expats in the United Kingdom

Submitted: April 2014

National Insurance number

Before you can register for tax you must obtain a National Insurance number (NINO). This can be done by phoning Her Majesty’s Revenue and Customs (HMRC) on: 0300 200 3502 which may be free depending on your service provider. See here for other specific contact numbers at HMRC.

Working for an employer

When you begin work for a UK employer in the UK, they will give you a form to fill in called a “P46 Employee without a P45”. This is used to register you with the HMRC and obtain your tax code. The tax code tells the employer how much income tax and Class 1 National Insurance Contributions (NICs) to deduct from your pay.

Each person has an allowance of a certain amount per year on which they pay no income tax. For 2014/2015 for a single person this amount is £10,000 which is £833 per month or £192 per week. This amount can vary depending on your circumstances; for instance if you are married. For more information see here. After these basic allowances you will pay 20% on earnings up to £31,865. On earnings from £32,011 to £150,000 you will pay 40%, and on earnings over £150,000 the tax rate is 45%.

The rate for NICs is 12% of your annual earnings from £7,956 to £40,040, above which the rate drops to 2%. For more information see here.

At the end of each pay period you should receive a slip of paper with your pay (payslip) which will show how much you earned (gross pay), how much was deducted in tax and NICs and how much you actually received (net pay). It will also show your tax code which will be several numbers and a letter, for example: 944L. If you think your tax code is incorrect, you should tell your employer. For more information see here. Below is an example of a monthly pay slip for a single person earning £25,000 per year.

Gross income£2,083.33
Taxable income£1,250.00
Income tax£250.00
NICs£170.44
Net income£1,662.89

There are calculators available online to work out your net income in varying circumstances. There is an example of one here.

Working as self-employed

If you intend to be self-employed you do not have to pay tax on your income every month. Instead you have to fill in a Self Assessment tax return once a year (sometimes twice) in which you detail your income, costs and other variables to arrive at a figure for income tax and NICs owed. The basic income tax allowances for the self-employed are the same as for the employed (see above). For NICs the final amount you will pay will depend on your profits. All self-employed persons must pay Class 2 NICs at a rate of £2.75 per week, though you can apply for an exemption if your profits fall below £5,885. In addition you will pay 9% of your profits from £7,956 to £41,865, and 2% on anything above that. These figures are not altered if you start as self-employed part of the way through a tax year. For more information see here.

The deadlines for tax returns depend on whether you complete the return on paper or online. For paper returns the deadline is midnight on 31 October of the following tax year. For online returns the deadline is midnight on 31 December of the following tax year. The penalty for missing these deadlines starts at £100 for being one day late, and can be severe. They can be appealed against. For more information see here.

Working as self-employed and for an employer

This situation is complex but the rules are designed so that you do not pay more than you would if you were only working for an employer. This is done by limiting the amount of Class 4 NICs payable. The calculation necessary for this is laid out here and there is an online calculator here.

Working tax credits

This is an amount that is paid monthly by HMRC to compensate for low income. The amount is usually based on your income in the previous tax year and varies on the hours that you work and your personal circumstances. If your income for the current tax year turns out to be greater than expected you will have to repay some or all of the money you received. For more information see here.

 

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