Statutory deductions explained

The P60 tax form is an statement that shows your earnings and all statutory deductions during an specific tax year. It is usually issued by 31st March to all employees and it is recommended for employees to keep this form in a safe place as chances of not being able to get a copy in case you lose the original one, are high. This form is useful as proof of earnings for benefits and tax credits, it also provides a great aid when completing a self-assessment tax return.

TAX

PAYE (Pay As You Earn) is the system being used to pay income tax. This tax gets deducted before you receive your monthly salary, this is your employer’s responsibility. They will be in charge of making sure that HMRC receives the employee’s paperwork on time.

You need to pay special attention to your tax code, so if the code is 1000L means that you are entitled to £10,000 tax-free allowances during the current tax year. Some people wrongfully think that it means the threshold to start paying and that can have costly consequences.

BR: This stands for Basic Rate which is (20%) and it means that you’re not receiving any tax-free allowances. The tax form for this is the P45.

0T – This means no allowances. It is used when there’s no notification of a tax code received.

National Insurance

National Insurance contributions are designed to build up towards some social security benefits you are entitled to, such as State Pension. Factors like whether you’re self-employed or not and your income will determine the NIC (National Insurance Contribution ) level. All NIC contributions cease after you reach State Retirement age.

There’s a default letter used for National Insurance is A, and the standard rate is NI. Anyone above State Pension Age should be in category C and no contributions should be paid by this person.

A – Standard Rate NI,  Employees pay 12% and then 2%

C – For employees who have reached state retirement age. No NI is due.

NI Thresholds

There’s a lot of information for the way statutory deductions work, and if you’re just starting your business it may be difficult to cover all basis without risking any issues with HMRC. Make sure that you explore the market if you’re looking for the right professional guidance to help you with complex administrative and accounting tasks or click here to talk with our team of professionals to see if we fit your business needs and requirement