Taxes, National Insurance and other deductions from your wages
A breakdown of the different taxes that people have to pay and deductions from your wages
Go back
Taxes and National Insurance might all seem a bit daunting. We’ll provide a brief overview and signpost some useful resources. Taxes are compulsory charges from governments that they go towards funding public services, such as infrastructure, education, healthcare and much more. You might also find it useful to see our How To Adult page on Getting paid! Understanding your salary, pay slips, and taxes.
Income tax
Income tax is compulsory tax on the money you earn from a job. If you are employed by an organisation, tax is usually taken straight from your payslip so you don’t have to do any admin for it. If you are self-employed, you will have to file something called a tax return.
There are different rates of tax depending on how much you earn. Everyone is entitled to a tax-free income of £12, 570 per year (called a Personal Allowance).
National Insurance
National Insurance (NI) is also compulsory and this goes towards state pensions and various state benefits. Similar to income tax, if you are employed by an organisation this will be deducted straight from your payslip. Before a young person turns 16, they will receive an National Insurance number, which they will have for life.
Pension contributions
Money towards a private pension (different from the State Pension) is usually deducted from your salary/wages. For example, organisations may have specific pension schemes that you pay into each month.
You can see our How to Adult page on pensions for more information.
Student loan
If you have previously taken out student finance for higher education and have finished your course, your student loan repayments might be deducted from your salary/wages. This depends on how much you earn at that time rather than being based on how much you owe.
You can see our How to Adult page on student finance for more information.
Other deductions
The deductions listed above are the main ones, but others might include:
- Union membership – if you join a workers’ union, membership fees are sometimes taken straight from your salary/wages.
- Salary sacrifice schemes – some companies offer certain products through something called salary sacrifice, where you pay towards that product monthly. A common one is electric car leasing.
If you see a deduction on your payslip that you don’t recognise, it is important to ask for advice.
Resources
Some resources for understanding more are:
- How Income Tax and the Personal Allowance works from MoneyHelper
- Second job tax and pay from MoneyHelper
- How does National Insurance work? from MoneyHelper
Image credits
Header image: Ling App
Mathieu Stern
Markus Winkler
Towfiqu Barbhuiya
Caleb Holden
Jakub Zerdicki
Christin Hume