To compensate for
tax loss and in a bid to woo high fliers away from the competition employers
may offer further sweeteners on top of your basic salary. These incentives
can come in many forms for example, health schemes, a company car, or
share options. There can be hidden costs with each of these, and their
value may alter with stock market and interest rate fluctuations. Serious
consideration needs to be made when accepting anything on top of, or
as a part of your salary because once you sign on the dotted line there
is no going back.
the Tax Man
Income Tax is your contribution to Government spending. Everyone who earns or receives an income over a certain amount in the tax year pays income tax, and the more you earn the more you pay. If you work for someone else, your employer will usually take the tax from your earnings each payday and pass it on to the Inland Revenue. This is known as 'Pay As You Earn' (PAYE). It takes care of your tax automatically, and saves you having to pay tax in one go at the end of the year. An information leaflet is available from the Inland Revenue (IR34 'PAYE).
The tax year starts on 6th April of one year and ends on 5th April of the next
is entitled to a tax-free Personal allowance and the amount you get
depends on the following factors:
There are three levels of Personal allowance:
If you are earning above your allocated personal allowance you have to pay the following rates of tax:
calculate how much tax to take off
What income is taxable?
The most common forms of taxable income are:
REMEMBER: You can claim back tax you've overpaid
If you are sure that your total income, including your interest and holiday earnings, will be less than your personal allowance (£4,335 in 1999-00) you can arrange for your interest to be paid without tax taken off.
is a P45, P46 and P91?
It is most important you are given a P45. If you do not get one, you may find you have to pay more tax in your new job until your correct PAYE code is confirmed.
A P45 is made up of 3 parts, you should keep Part 1A as a record of your pay and tax and hand the P45 Parts 2 and 3 to your new employer as soon as possible so the right amount of tax is taken from your pay.
If for some reason you don't have a P45 and are starting a new job, your new employer will give you a form P46 which you can sign. If you sign statement B on the form, a temporary PAYE code will be operated for you.
The Tax Office will then try to trace your previous employer so they can give you your proper code. If they can't, they will send you a form P91 asking you for details of your previous job(s). In the meantime, your new employer will continue to use the 'emergency code' for you.
If you go straight to a job when you leave school or college, your new employer will give you a form P46 that you can sign. You can then be given a PAYE code based on the personal allowance for people under 65. Your employer will use this code on your first payday and send the P46 to the Tax Office to let them know you have started work.
You should tell your employer your National Insurance (NI) number as soon as you start work or change jobs. You will also need to quote it whenever you get in touch with the Tax Office because they use it as a tax reference number. If you do not know your NI number, ask at any Department of Social Security Office.
happens if I have other income as well as my earnings?
If you do not get a Tax Return and receive other income as well as your earnings, you should contact your Tax Office and ask for one. If the income is not taxed before you get it, or if you are paying tax at a higher rate, your PAYE code may need to be changed. This is so you can pay any tax due on the additional income at the same time as the tax on your earnings.
Each month you will pay NI contribution on what you earn over £329 and up to £2, 318, generally this comes to about 10% of your salary. If your employer runs an occupational pension scheme your contribution is reduced to 8.6%.
Students in full-time education at college or university do not have to pay NI contributions. However, if you work for someone else or are self-employed whilst in full-time education and earn at least a certain amount (which is known as the Lower Earnings Level) you must pay NI contributions.
By the time you're 16 you should have received your NI Numbercard from the Contributions Agency. For more information, see their leaflet FB23 'Young People's Guide to Social Security' which you can get from your local Social Security or Contributions Agency Office.
As a general rule this scheme is offered by larger companies who may provide cover that encompasses your immediate family. If a company provides this kind of cover, then the Inland Revenue regards the cost of the cover as a taxable benefit and a deduction is generally made in your tax coding.
Sometimes there are restrictions placed upon when you can sell the shares. For example you might be given 100 shares a year, but can only sell 20 of these per year over a five-year period.
Some new internet startup firms offer new employers to have a chunk of their salary paid in the form of shares, for example a job may pay a salary of £20,000 but you may be offered £17,000 and £3000 pounds worth of shares at the current value. Employers should be wary of this arrangement, because as quickly as share values can increase…they can also go down.
Companies obviously use this as an incentive for sales people to sell more…but naturally, as your commission takings go up then so will your targets!
In the worst-case scenario, you'll pay tax on 35% of the value of the car when new. So, if the car costs £20,000, you'll pay tax on £7,000 of that. This only happens if you drive less than 2,500 miles for work. But if you drive more than 2,500 miles, that figure drops to 25%; and, if you clock up more than 18,000 miles, to 15%.
If you already own a car, you may be offered a cash allowance instead. This is paid as part of your salary. Generally, if you don't expect to drive a lot, this is the better deal.
Larger companies may offer its employees the benefit of a company pension scheme. If the employer is a particularly large organization, it may even appoint a fund manager in the City of London to handle its pension fund.
Traditionally there are two main types of occupational pension scheme in existence:
Investing in a private pension plan is one of the most tax efficient things you can do with your money. If you invest substantially and if investment returns over the period are good, and inflation is low, a nice nest egg can be accumulated for your old age.
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