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Employment Taxes (England, Wales & Northern Ireland)

When you hire an employee in the UK, you must register and operate a payroll scheme.

This payroll scheme will be a PAYE (Pay As You Earn) scheme and must be registered with HMRC (the UK tax authorities). For further information regarding the set-up and operation of a PAYE scheme, please see our Quick Guide “Payroll and Employment”.

There are three taxes associated with a UK payroll scheme, two that affect the employee and one that affects the employer. These taxes are listed below with their corresponding rates.

It should be noted employees who live in England, Wales and Northern Ireland use the same PAYE rates and thresholds which are detailed below. There is a separate guide for Scottish employees – a Scottish employee is defined as someone who lives in Scotland. Scottish tax codes are determined by HMRC and have an “S” prefix.


Employee taxes:
PAYE (Income tax)

20%-45%
(depending on earnings)

National Insurance (social security)

13.25 - 3.25% (subject to earnings threshold **********)

Employer taxes:
National Insurance

15.05%

As you can see above, both the employee and the employer contribute to social security in the UK.
Below are example calculations of different earnings levels and difference pension options:


Gross salary

£25,000.00

Less: personal allowance*

-£12,579.00

Taxable salary

£12.421.00

PAYE @ 20%**

£2,484.20

National Insurance @ 13.25%****

£2,003.40

Employee pension (net pension on Qualifying Earnings)********
Employee net wage

£750.40
£19,762.00

Employers National Insurance @ 15.05%******
Employers pension contribution

£2,392.95
£562.80
£2,955.75

Total Cost to Company

£27,955.75

Gross salary

£65,000.00

Less: personal allowance*

-£12,579.00

Taxable salary

£52,421.00

PAYE @ 20%**

£7,540.00

PAYE @ 40%***

£5,888.40

National Insurance @ 13.25%****

£5,351.68

National Insurance @ 3.25%*****

£478.71

Employee pension (net pension on Qualifying Earnings)********
Employee net wage

£1,761.20
£43,980.01

Employers National Insurance @ 15.05%******
Employers pension contribution

£8,412.94
£1,320.90
£9,733.84

Total Cost to Company

£74,733.85

Gross salary

£65,000.00

Less: personal allowance*

-£12,579.00

Taxable salary

£50,219.50

PAYE @ 20%**

£7,540.00

PAYE @ 40%***

£5,007.60

National Insurance @ 13.25%****

£5,351.68

National Insurance @ 3.25%*****

£407.17

Employee pension (salary sacrifice on Qualifying Earnings)*********
Employee net wage

£2,201.50
£44,492.05

Employers National Insurance @ 15.05%******
Employers pension contribution

£8,081.62
£1,320.90
£9,402.52

Total Cost to Company

£74,402.52

Gross salary

£130,000.00

Less: personal allowance*******

-

Taxable salary

£130,000.00

PAYE @ 20%**

£7,540.00

PAYE @ 40%***

£36,920.00

National Insurance @ 13.25%****

£5,351.68

National Insurance @ 3.25%*****

£2,591.21

Employee pension (net pension on Qualifying Earnings)********
Employee net wage

£1,761.20
£75,835.91

Employers National Insurance @ 15.05%******
Employers pension contribution

£18,195.44
£1,320.90
£19,516.34

Total Cost to Company

£149,516.34

Following the Chancellor’s statement on 23rd March 2022, the Primary Threshold for Employee National Insurance is being increased from 6th July 2022 from £9,880 to £12,570. This means, from July 2022, the Employee National Insurance Contributions will decrease as more earnings will be exempt from NIC. Please see a table below showing the effect this will have on monthly contributions:

Monthly Salary                                               £2,083.33                    £5,416.67                    £10,833.33                 
Employee NIC (June 22)                                  £166.99                       £485.89                       £661.93
Employee NIC (July 22)                                   £137.18                       £456.08                       £632.12
Employee NI Saving (from July 22)                  £29.81                         £29.81                         £29.81

The above table shows there is a monthly saving of £29.81 for all employee between June to July 2022.

Other notes:

* The personal allowance is an annual tax free allowance that is given to UK employees and is dependent upon benefits received. The default personal allowance for the tax year 2022/23 is £12,579 giving the standard tax code of 1257L (this has remained the same as the 2021/22 tax year).

** PAYE is calculated on earnings to £37,700

*** PAYE is calculated on earnings between £37,700 and £150,000

**** Employee National Insurance is calculated on earnings between £9,880 and £50,270

***** Employee National Insurance is calculated on earnings above £50,270

****** Employer National Insurance is calculated in earnings above £9,100

******* The personal allowance starts to decrease after £100,000 and by £125,000 is nil.

******** Qualifying Earnings are ni’able earnings between the Qualifying Earnings Lower limit and the Qualifying Earnings Upper limit. In previous tax years, these limits have mirrored the National Insurance earnings threshold but for the 2022/23 tax year this is earnings between £6,240 and £50,270 – this means pension contributions for schemes using Qualifying Earnings are capped at the upper limit.

********* Salary sacrifice contributions are deducted before Tax and National Insurance so they further reduce the taxable pay after the personal allowance is taken into account. There is also an employee and employer NI saving

********** Employees National Insurance contributions are calculated at 13.25% on earnings between £9,880 and £50,270, then 3.25% on all earnings above £50,270

The PAYE, Employees National Insurance and Employers National Insurance payments need to be made to HMRC by the 22nd of the month following the month in which they were earned if paying online (i.e., April 2022 liability due by May 22nd).
If an employee is seconded to the UK on a work assignment, there could be NI exemptions depending on their home country.

Employment Taxes (Scotland)

When you hire an employee in the UK, you must register and operate a payroll scheme.
This payroll scheme will be a PAYE (Pay As You Earn) scheme and must be registered with HMRC (the UK tax authorities). For further information regarding the set-up and operation of a PAYE scheme, please see our Quick Guide “Payroll and Employment”.
There are three taxes associated with a UK payroll scheme, two that affect the employee and one that affects the employer. These taxes are listed below with their corresponding rates.
It should be noted employees who live in Scotland have their PAYE calculated on different rates and thresholds which are detailed below. There is a separate guide for England, Wales and Northern Ireland.
For the purposes of this guide, a Scottish employee is defined as someone who lives in Scotland. Scottish tax codes are determined by HMRC and have an “S” prefix.


Employee taxes:
PAYE (Income tax)

19%-46%
(depending on earnings)

National Insurance (social security)

13.25 - 3.25% (subject to earnings threshold ************)

Employer taxes:
National Insurance

15.05%

As you can see above, both the employee and the employer contribute to social security in the UK.
Below are example calculations of different earnings levels and difference pension options:


Gross salary

£25,000.00

Less: personal allowance*

-£12,579.00

Taxable salary

£12.421.00

PAYE @ 19%**

£410.78

PAYE @ 20%***

£2,051.80

National Insurance @ 13.25%******

£2,003.40

Employee pension (net pension on Qualifying Earnings)**********
Employee net wage

£750.40
£19,783.62

Employers National Insurance @ 15.05%********
Employers pension contribution

£2,392.95
£562.80
£2,955.75

Total Cost to Company

£27,955.75

Gross salary

£65,000.00

Less: personal allowance*

-£12,579.00

Taxable salary

£52,421.00

PAYE @ 19%**

£410.78

PAYE @ 20%***

£2,191.20

PAYE @ 21%****

£3,774.54

PAYE @ 41%*****

£8,744.89

National Insurance @ 13.25%******

£5,351.68

National Insurance @ 3.25%*******

£478.71

Employee pension (net pension on Qualifying Earnings)**********
Employee net wage

£1,761.20
£42,287.00

Employers National Insurance @ 15.05%********
Employers pension contribution

£8,412.94
£1,320.90
£9,733.84

Total Cost to Company

£74,733.85

Gross salary

£130,000.00

Less: personal allowance*********

-

Taxable salary

£130,000.00

PAYE @ 19%**

£410.78

PAYE @ 20%***

£2,191.20

PAYE @ 21%****

£3,774.54

PAYE @ 41%*****

£40,552.28

National Insurance @ 13.25%******

£5,351.68

National Insurance @ 3.25%*******

£2,591.21

Employee pension (net pension on Qualifying Earnings)**********
Employee net wage

£1,761.20
£73,367.11

Employers National Insurance @ 15.05%********
Employers pension contribution

£18,195.44
£1,320.90
£19,516.34

Total Cost to Company

£149,516.34

Following the Chancellor’s statement on 23rd March 2022, the Primary Threshold for Employee National Insurance is being increased from 6th July 2022 from £9,880 to £12,570. This means, from July 2022, the Employee National Insurance Contributions will decrease as more earnings will be exempt from NIC. Please see a table below showing the effect this will have on monthly contributions:

Monthly Salary                                               £2,083.33                    £5,416.67                    £10,833.33                 
Employee NIC (June 22)                                  £166.99                       £485.89                       £661.93
Employee NIC (July 22)                                   £137.18                       £456.08                       £632.12
Employee NI Saving (from July 22)                  £29.81                         £29.81                         £29.81

The above table shows there is a monthly saving of £29.81 for all employee between June to July 2022.

Other notes:

* The personal allowance is an annual tax free allowance that is given to UK employees and is dependent upon benefits received. The default personal allowance for the tax year 2022/23 is £12,579 giving the standard tax code of 1257L (this has remained the same as the 2021/22 tax year).

** PAYE is calculated on earnings to £2,162

*** PAYE is calculated on earnings between £2,162 and £13,118

**** PAYE is calculated on earnings between £13,118 and £31,092

***** PAYE is calculated on earnings between £31,092 and £150,000

****** Employee National Insurance is calculated on earnings between £9,880 and £50,270

******* Employee National Insurance is calculated on earnings above £50,270

******** Employer National Insurance is calculated in earnings above £9,100

********* The personal allowance starts to decrease after £100,000 and by £125,000 is nil.

********** Qualifying Earnings are ni’able earnings between the Qualifying Earnings Lower limit and the Qualifying Earnings Upper limit. In previous tax years, these limits have mirrored the National Insurance earnings threshold but for the 2022/23 tax year this is earnings between £6,240 and £50,270 – this means pension contributions for schemes using Qualifying Earnings are capped at the upper limit.

************ Employees National Insurance contributions are calculated at 13.25% on earnings between £9,880 and £50,270, then 3.25% on all earnings above £50,270

The PAYE, Employees National Insurance and Employers National Insurance payments need to be made to HMRC by the 22nd of the month following the month in which they were earned if paying online (i.e., April 2022 liability due by May 22nd).

If an employee is seconded to the UK on a work assignment, there could be NI exemptions depending on their home country.

 

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