Taxes – Understanding Payroll Taxes and Deductions in the UK


Taxes – Understanding Payroll Taxes and Deductions in the UK

In the UK, you must pay taxes and National Insurance contributions (NICs) on your income.

This guide explains what these taxes are, how they’re calculated and why they’re important to understand.

Introduction to payroll taxes

Payroll taxes are levied on employers based on how much they pay their employees. The amount of payroll tax is determined by the type of employee, and each type has a different tax rate. For instance, if you’re an employee earning £500 a week, you will pay 20% in income tax and National Insurance contributions (NICs).

Pay as you earn (PAYE) taxes

PAYE is a tax on your income from employment. It means that deductions are taken from your salary and paid to HMRC (Her Majesty’s Revenue & Customs), the government department responsible for collecting taxes in the UK.

National Insurance contributions (NICs)

National Insurance contributions (NICs) are payroll taxes that you must pay if you work in the UK. You will be taxed on both your income and your employer’s contributions at a flat rate of 12%. You’ll only need to pay NICs on earnings above what’s known as the NIC threshold: £8,632 per year as of 2018.

Student loan repayments

If you’re earning money while studying, the government will deduct money from your wage at a rate of 9% of earnings above £17,775 per year. If you earn less than this amount, or if your income is steady and predictable over multiple years (if you’re self-employed), you can request a lower repayment rate by contacting Student Loans England.

Pension deductions

The money is paid into a pension fund, which is invested and grows over time. You can choose how much you want deducted from your paycheck each month and it will be taken out of your wages before they are taxed.


That’s it! You now know all about the different payroll tax deductions in the UK. We hope this has helped you understand how important it is for businesses to have a good understanding of their payroll taxes, and why having an expert on your side can be so beneficial. If you want to know more about how SQK can help with your payroll and other tax requirements contact us today.
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