Video Transcript – Income tax basics
Many students work part-time jobs and are worried about liability to pay income tax and national insurance contributions. The good news is that there is a tax-free amount of £12,570 per tax year, so unless you make more than that you do not need to pay any income tax.
Remember the tax year runs from the 6th of April to the 5th of April of the following calendar year. Above £12,570 the standard rate of tax is 20% followed by a rate of 40% for income above £50,000. Income tax is deducted by employer every month on the assumption that you will make the same amount for the full tax year. So, you may end up paying more than you should. You can see from your P60 form the total amount of money that you earned and total income tax deductions. You can then calculate how much tax you should have paid and see if you have overpaid. In that case, you can contact HMRC and claim a reimbursement though they usually do this automatically. Here are the details on income tax rates: https://www.gov.uk/income-tax-rates.
Video Transcript – National Insurance Basics
National insurance is different as your liability is based on weekly income not annual income. So, if you work for a few weeks during the summer, you may be liable to pay NI contributions but not income tax. You usually have to pay NI if you earn more than £242 per week. For earning between £242.01 and £967 per week the current rate (March 2025) is 8%. Rates and thresholds may change each tax year. So, the amount of NI you pay will be higher if you make a high amount of money for a limited period of time, as compared to making the same amount of money over a longer period of time. Again, the employer will deduct automatically from your monthly salary and your pay slip will provide the details. For more details, see here: https://www.gov.uk/national-insurance.
Video Transcript – Minimum wage and living wage
If you are working do not forget that you are entitled to the national minimum wage or national living wage depending on your age (you get the full one when you are 21). From April 2025 the national living wage for persons aged 21 years and over will be £12.21 per hour. This means your employer is not allowed to agree with you a lore hourly rate. Here are the details: https://www.gov.uk/national-minimum-wage-rates.
You also have a right to 5.6 weeks of paid holiday for a full-time job (pro rata for a part-time job). You can find the relevant details here: https://www.gov.uk/holiday-entitlement-rights.
You also have a right to a safe working environment and not to be subjected to discrimination or harassment. If you have a complaint against your employer or you believe you have been unfairly dismissed, you can bring a case at the employment tribunal. You do not need a lawyer for this. For more details on how to bring proceedings to the tribunal see: https://www.gov.uk/courts-tribunals/employment-tribunal.
Video Transcript – Pensions
While it might feel too early to think about pensions, most employers offer you a chance to join an occupational pension scheme. You normally get enrolled automatically and you have the right to opt out. So, apart from your income tax and NI contribution, a contribution to the pension scheme is deducted every month from your gross salary thus reducing your net salary. Once you get into a full-time job this is a good idea.
There are two main benefits compared to saving or investing the money that you would have paid into the scheme as a salary deduction:
(1) Your employer in most schemes also pays contributions into the scheme so effectively it is like being paid a higher salary with the additional amount going into your pension;
(2) Your contribution is deducted from your taxable income so you do not pay income tax for that amount. This means that you save the relevant amount of tax that you would otherwise have paid (20% or 40% depending on your total annual income).
If you change jobs, you can often transfer your benefits from one pension scheme to another, but it is crucial to keep details of all pension schemes to which you have contributed. Remember apart from the pension you will be paid under your voluntary occupational pension scheme(s) when you reach state pension age you will also be entitled to state pension provided you have paid enough year or NI contributions during your lifetime (normally for 35 years). For young people today the state pension age will be 68 years old, so this is when you will start receiving your pension.
The full basic State Pension was £221.20 per week in March 2025. This is expected to rise in line with inflation, but it is not meant to cover the full living expenses of older people hence the importance of joining your occupational pension fund. For more details, see here: https://www.gov.uk/new-state-pension/what-youll-get.