Tax and Starting Your First Job
15th November 2016
Landing your first job is a big deal. You've probably got a lot to think about and prepare for. Take a second to think about your tax situation, though. It might not be as simple as just letting your employer take care of it. If you're about to finish school, college or university take a look at our handy checklist and make sure you're all set to take your first confident steps into the working world.
What Are Income Tax and National Insurance Contributions?
Income Tax and National Insurance are the two main taxes that automatically get taken out of your pay when you work for an employer. The system is called Pay As You Earn (PAYE). If you're self-employed, you have to take care of these yourself.
With Income Tax, you get a Personal Allowance. This is the amount of money you can make without paying any tax on it. It's really what your tax code is all about. The basic personal allowance right now is £11,850. Anything you make over that amount each year will get taxed, and the rates go up the more you earn.
National Insurance contributions are also generally taken out of your wages by your employer, if you have one. They're compulsory, and basically qualify you for things like the State Pension. The kinds of National Insurance contributions you make depend on your employment status.
What Paperwork Do I Need When I Start My First Job?
The two kinds of paperwork you need to store are your payslips and your PAYE forms. Payslips are essential if you ever need to claim a tax refund. They're also useful tools for generally keeping track of your finances. Make sure you keep them in a safe place if they're on paper - or backed up if they're in electronic form.
When you start your first job, you should be asked to fill in a PAYE form called a "Starter Checklist". This helps to work out what your tax code should be, which in turn affects how much tax you'll end up paying. Other PAYE forms you'll encounter include:
- Form P60: a yearly round-up of your payslips. It'll also show all the tax you've paid.
- Form P45: you'll get this when you leave a job. It'll be helpful if you need to claim a tax refund.
What Happens If I Pay Too Much Tax?
If you've overpaid your tax, you have to contact HMRC to claim a tax rebate. You'll need to prove you've paid too much, and will be expected to have records to back up your claim. Sometimes, you may be able to get your refund included in your wages. If that's not possible, you'll have to get it directly from HMRC.
You can end up overpaying tax for a few reasons. If you stop work part-way through a tax year you may not have used up your whole personal allowance, for example. Depending on the kind of work you do, you may also have unclaimed tax relief from things like travel expenses, for example.
In the case of travel expenses it's because HRMC rules are that you don't pay tax on the cost of travel you do in the course of your work. Many employers sort this out for their employees by refunding the cost of travel as expenses. If they don't, or if they only pay a part of it, you then have to claim the rest back from HMRC at the end of the tax year. Don't ignore this. It may not seem like it would be worth much, but here at RIFT we've claimed back over £180 million for people, with the average person getting back £700 a year. Think how much of a difference it would be to have that back in your pocket.
If you have the wrong tax code then you may pay too much or too little tax. If you pay too little, don't make the mistake of thinking you'll get to keep that money. HMRC will catch up with you and demand it all back at once, which can be extremely difficult. Have a look at our guide to tax codes to make sure yours is correct.
What Happens When I Start work After claiming Jobseeker’s Allowance or Employment and Support Allowance?
When you start work after claiming JSA or ESA, the tax you've paid will be calculated by the Department for Work and Pensions. If you've paid too much, they'll arrange a refund.
What Do I Do About My Tax if I Have a Second Job?
If you've got more than one job, you'll get a second tax code from HMRC. Whichever job is your "main" one will count for your tax-free personal allowance. Any other incomes will usually be taxed right from the first penny.
There can be problems if your main job pays you less than your personal allowance. Basically, you won't be getting the full benefit of it. You can either :
- Let HMRC know that your other (higher paying) job is now your main one.
- Apply to have your personal allowance divided between your jobs.
What Happens When I Change or Leave a Job?
When you leave a PAYE (employed by a company) job, you'll get a P45 form to show what tax you've paid so far this tax year. It's very important that you keep hold of this. If you're moving to another job, for example, your new employer will need it.
If you leave a job and start claiming benefits like Jobseeker's Allowance of Employment and Support Allowance, the DWP will ask for your P45. They'll need the information to pay you any refunds you might be due.
How Do I Make Student Loan Repayments?
Student loan repayments are generally paid through the PAYE system. HMRC lets your employer know what to deduct from your pay, and you'll see what's been taken off in your payslips. Again, it's useful to keep track of this information, in case there's ever a problem.
What Are Pensions?
Simply put, pensions are a way of saving throughout your working life for your retirement. The UK government encourages this by offering tax relief on your pension contributions. This is a huge topic, so it's best to get independent advice about your options and what is best for you.
What Are Tax Credits?
Depending on your situation, you might be able to claim tax credit, Universal Credit or other benefits while you're working. These generally offer financial help for people caring for children, living with disability or on low incomes. You have to apply for them, and fit various criteria to qualify.
What Records Do I Have to Keep, and Why?
The main tax paperwork to keep includes things like:
- Payslips and PAYE documents.
- Details of any expenses you can claim tax relief for.
- Any benefits in kind you get (things like company cars, for example).
- Details of state benefits or workplace pension schemes.
These documents may be useful if you ever have to claim a tax refund or file a Self Assessment tax return. You may also need them to claim tax credits of benefits.
Whatever paperwork you keep, you should hang onto it for at least 22 months after the tax year ends.
Can I Get Help with My Tax Paperwork?
Absolutely! RIFT has nearly 20 years of experience with tax rebates and tax returns. That makes us the UK's leading experts in helping people understand and improve their tax situation. Get in touch with us if you need our help.