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From the age of 16, we’ll all have some money taken from our wages – and you’ll see how much on your payslip. Your employer takes these deductions off for you, without you having to do anything. But that means what you take home (your net pay) will be less than the total you’ve earned (gross pay).
Sounds a little depressing doesn’t it? Well, it does at first. But when you take the time to understand where your money is going, and why, you start to realise that these deductions are there to help you now – and in the future.
There are three things your employer must put on your payslip:
Now, where do these deductions go? And why are they good for your future? Let’s take a closer look at the ones you might see on your payslip…
This stands for ‘Pay As You Earn’ – it shows how much you’re paying in income tax. This money goes towards government services, like education and the NHS.
You’re allowed to earn a certain amount of money tax free before you start paying income tax. This is called your personal allowance. The example below is based on (2020-2021) with a personal allowance of £12,570 per year, check Gov.uk for the most updated figures around personal allowances and national insurance.
When you start working, you’ll get a tax code that decides how much is taken from your wages. The basic rate of tax is 20% for salaries up to £50,270. So, how does this all add up?
So if you earned £24K you would take £12,570 away from that, and be left with £11,430. Therefore, you’d pay the 20% basic tax rate on £11,430.
A compulsory tax you pay if you’re 16+ and earn over £184 a week. This contributes to state benefits such as the State Pension and the NHS. The amount you pay depends on how much you earn, as well as your current employment status.
Your National Insurance number (NINO) will be sent to you just before your 16th birthday. It’s unique to you and makes sure there’s an accurate record of how much you’ve paid in National Insurance contributions.
Check out the most up to date tax and national insurance thresholds. There are also plenty of online calculators which you can use to help you work out how much you will take home.
When you’re young, the last thing you’re probably thinking about is your retirement. But it pays to plan ahead. Your state pension (supported by National Insurance contributions) will give you some money later in life – but you may want to put some extra money away so you’re even more comfortable. And that’s where a private pension comes in.
If you pay into a private pension, you’ll see these deductions on your payslip. This money will stay with your pension provider until you’re allowed to access it – which is usually when you’re 55 or over (but they’re all different).
If you study after school, you’ll probably need a student loan to help you pay for your tuition fees and/or living expenses. You can get a student loan at any age – but you’d normally get one when you start further education at 16 or 18.
Then once you earn a certain amount, you have to start paying it back – plus interest. Each month you pay back a percentage of any income over the earning threshold detailed on the repayment plan you are on. So the more you earn, the more you’ll pay back. You’ll be able to see what you’re paying back on your payslip.
Visit the Student Finance on the government website to review the details of the different plans.