PAYE & NI

Employees pay tax and national insurance contributions at source deducted from their wages. This is known as PAYE, Pay As You Earn, system.

Everybody is entitled to the basic personal allowance,  £6,035 for 2008/2009 and £6,475 for 2009/2010. Some people may have a different personal allowances, which will be based on their tax code issued by the Revenue to the employee on form P2, depending on their own personal circumstances, such as married couple allowances, taxable benefits received above the basic personal allowances.

After the deduction of the personal allowances, the excess is taxed at 20%, and, if relevant, at 40% rate. Class 1 NIC is taxed at 11% rate, and 1% on earnings in excess of the upper earnings limit, £844 per week.

There may be employees who receive benefits from employer, in which case a tax issue may arise.

The most common taxable benefits that an employee may receive are:

• private use of a company car
• fuel benefits, where an employee is provided with fuel for private motoring
• business use of a private car, where mileage allowances will be paid when an employee uses his own car for work purposes.
• vouchers

The provision of a mobile phone and associated calls is a tax-exempt benefit.