Is there anything more satisfying than receiving your first pay cheque at a new job? Maybe not, but a first pay cheque can come with its own unique problems. Individuals occasionally find anomalies when receiving their first pay cheque, which can be potentially upsetting. The best way to prevent this is to have, at least, a basic understanding of the taxation system in the United Kingdom (UK).
This will have the superficial benefit of allowing you to understand what your pay cheque actually entails, but additionally aid you in budgeting and planning for your future. Here you will find a few frequently asked question which should help you understand your monthly pay cheque.
What is the difference between Net Income and Gross Income?
Net Income is income following tax and deductions, whereas Gross Income is prior to this. When understanding how much money you actually have in your pocket, Net Income is what you should be looking at.
Why am I paying National Insurance contributions?
National Insurance is another term you will see on a pay cheque. In the UK, this is the compulsory way that the employees and employers provide state assistance to contribute to a social safety net, to the benefit of the ill, unemployed and retired.
What is a Tax Code?
Your Tax Code enables your employer to work out how much tax to deduct from your pay each month depending on how much you earn. Made up of numbers and letters, your tax code is unique to you and helps determines how much you pay in tax through factors such as your salary and your living arrangements.
What is my personal allowance?
Your personal allowance depends on a few different factors including your age and your salary. If you were born after the 5th April 1948 and you earn under £100,000 a year, your personal, tax free allowance is £10,000. This means the amount you take home tax-free, anything you earn after this bracket will be taxed.
It is very important to understand how your pay is calculated, as it enables you to properly assess what is going on with your finances and income, and to budget accordingly. If you have just started a new job and want to find out what to expect from your first pay cheque, it is always useful to use a tax calculator to allow you to effectively determine what you ought to be paying and why.
For more information on your pay cheque:
Understanding the basics of Tax Codes: http://www.hmrc.gov.uk/incometax/codes-basics.htm
What is National Insurance? : https://www.gov.uk/national-insurance/overview
Tax calculator: http://www.gocompare.com/money/tax-calculator