First time workers
In this section we look at the various issues and concepts that you may come across and need to understand when you first start work as an employee.
When you start work as an employee for the first time, there are lots of things to think about. In addition to settling into your job, you need to understand your tax position.
When you become an employee, your employer is responsible for deducting income tax and National Insurance contributions (NIC) from your salary before you receive it. This system is called Pay As You Earn (PAYE).
You can use this section as a checklist for things related to tax and PAYE to consider when you first start work – we also direct you to further guidance.
NOTE If you are starting self-employment, you will find useful information in our section on self-employment.
There is a basic guide to the UK tax system available on our website that you may find useful. Although it is aimed at migrants who are new to the UK, it will also be useful to first time workers.
You may also find our list of the most commonplace tax issues that newly arrived migrants face useful, as there will be some overlap with tax issues that first time workers face.
You should always receive a payslip each time you are paid, this can be printed on paper, handwritten or an electronic copy for example. How often you get a payslip will depend on how often you are paid. It is usually weekly or monthly.
Whatever payment method your employer adopts, they must always provide you with a payslip each payday. If your employer does not give you a payslip each payday, you should ask for one.
The payslip has to show a number of things, by law. The main ones are your gross wages (the amount before anything is taken off), the income tax and NIC deducted under PAYE, and your net wages (the amount you actually receive). It may also show your National Insurance number (NINO), your PAYE code (more on this below), your employer’s PAYE reference and how you will be paid, for example, in cash, by cheque or directly to your bank. You can find more information on GOV.UK.
You should check the personal information on it carefully and in particular, the gross pay figure – have you been paid what you expected/what you are due by law, for the hours you worked?
Keep every payslip in a safe place – if you have paid too much tax, you will need these details to claim it back.
There is an example payslip at 'understanding your payslip' in the ‘Useful Links section’ of this website. In order to check the deductions made by your employer, we suggest you refer to our factsheet, ‘What should I see on my payslip?’ available on our Tax Guide for Students website.
Note that not all payslips look the same, but they should all contain similar types of information.
If you are paid in cash and/or do not receive a payslip, you should read the guidance in our migrants guide.
When you start work for the first time, you will not have a form P45, so your employer should ask you to complete a Starter Checklist (this used to be known as form P46).
The checklist asks you for relevant information; it will help your employer to allocate an ‘emergency’ tax code and work out the tax due on your first payday. HMRC will process the information you have provided on the Starter Checklist and where necessary, revise your tax code. You can find more about emergency tax in the page 'How do I check my coding notice?'.
The Starter Checklist requests information like:
- your NINO;
- whether you have been claiming Jobseeker's Allowance or Employment and Support Allowance;
- whether you have got a second job;
- whether you are paying off a student loan.
It is important that you complete the Starter Checklist or provide the relevant information your employer has asked you for, as soon as possible before your first payday, so your employer knows what tax code to use. If you do not provide this information, you could end up paying the wrong amount of tax.
Give the completed checklist to your employer. Do not send the checklist to HMRC. Keep a copy of the checklist for your own records.
The checklist is available on GOV.UK.
There is an illustration of how to complete a Starter Checklist in the ‘Useful Links’ section of this website.
Form P60 is an annual summary of all your payslips. If you still work for your employer at the end of the tax year, they must give you a form P60 by 31 May. Note that a tax year runs from 6 April to 5 April, so the tax year 2018/19 ends on 5 April 2019. If you are working for an employer at 5 April 2019, they must provide you with form P60 by 31 May 2019.
Keep your form P60 as a record of your pay and the tax that was deducted. You must keep your P60 safe. If you lose it, your employer may be able to give you a copy, which will be marked “duplicate”.
Form P45 is a record of your pay and tax deductions to date in the tax year. When you stop working for an employer, they should give you a form P45. It shows details like:
- your tax code and PAYE reference number;
- your leaving date;
- your wages so far in the tax year – 6 April to the following 5 April;
- how much tax was deducted from your wages.
A form P45 has four parts. Your employer sends the information in Part 1 to HMRC and gives you the other three (Parts 1A, 2 and 3). When you start a new job, give two parts (Parts 2 and 3) to your new employer and keep the other one (Part 1A) for your own records.
There is more information about form P45 in the page 'How do I check my coding notice?'.
You should keep your P45 safe as your employer will not be able to provide you with a duplicate if you lose it. But should be able to provide you with a ‘statement of earnings’ on company-headed paper. This acts as a replacement for a P45.
When you start work, HMRC issue a PAYE code to your employer, to tell them how much tax to take off your income. HMRC may also send you a copy of this PAYE code – this is your PAYE coding notice (form P2). Your payslips should also show the PAYE code that your employer is using and you can always check this in your Personal Tax Account.
As stated above, if you are undergoing the new starter process HMRC may not have enough information to issue a PAYE code. So, your employer may use an emergency tax code until HMRC have more information and issue the correct tax code.
There is more information on how the PAYE system works, PAYE coding notices and tax codes, including emergency tax codes, in the page 'How do I check my coding notice?'.
You pay income tax on your taxable income. Normally, income from employment is taxable. There is more information about what employment income is taxable on the page 'What income is taxable?'.
Nearly everyone who lives in the UK is entitled to a tax free personal allowance. This is the amount of taxable income you can receive each year without having to pay tax on it. The basic personal allowance is £11,850 for 2018/19. There is more information about the personal allowance, and other allowances, in our ‘tax basics section’.
When you are an employee and paid under PAYE, your personal allowance is spread equally over the tax year. Your tax code tells your employer what tax-free earnings you are entitled to in a particular pay period, so that tax at the appropriate rates may be calculated on the balance.
There is more information about the tax rates and how they apply to your earnings on our page 'What tax rates apply to me?'.
National Insurance contributions (NIC)
When you first start work, you need to tell your employer your National Insurance number (NINO) to make sure the income tax and NIC you pay are properly recorded. You will find your NINO on the NINO card or notification letter you received from HMRC when you turned 16.
There is more information about NINOs in our ‘tax basics section’.
Most employees pay NIC on their wages – your employer normally deducts NIC together with income tax before paying you your net pay.
The NIC you pay can earn you the right to receive certain state benefits, including the state retirement pension. You can find out more information about NIC in our 'tax basics section’.
The page 'What National Insurance do I pay as an employee?' contains detailed information about employee NIC.
You may sometimes pay too much tax on your employment income through the PAYE system. For example, where you have paid emergency tax at the beginning of a new job or where you have tax deductible employment expenses.
You can find more information about why you might have paid too much tax and how to claim a refund of tax in our page 'What if I pay too much tax?'.
Apprenticeships can offer a gateway into a variety of careers. There is a common misconception that apprentices do not have to pay tax. This is not the case. Apprentices have to pay income tax in the same way as everyone else.
You can read more about apprentices in the dedicated section in our disabled people and carers guide. The information is located here due to the numbers of disabled people in apprenticeships, but the information is applicable more widely.
Working for an agency
Agency work can often be a stepping stone into a permanent job for first time workers. It can also be a good option if you wish to gain experience and employability. But there are some complexities to be aware of.
To find information to help you if you work through an agency or other intermediary, look at ‘Am I employed, self-employed, both or neither?’ in the ‘employed section' of this website.
Tax and NIC treatment of tips
Your first job may be in the hospitality or catering industry and you may receive tips.
If you receive tips from customers, you have to pay income tax on them, but you may not have to pay National Insurance contributions (NIC). The way in which you work out your tax/NIC on tips depends on who the tips are given to and who decides how to share the tips.
We give you some tips about the tax treatment of tips in our news piece.
When you stop claiming Jobseeker's Allowance or Employment and Support Allowance to start work for a new employer, the Department for Work and Pensions (DWP) they should issue a P45(U) or P45(ESA), which you should give to your new employer.
This summarises the amount of taxable benefit received. It is important to be aware that although they may be taxable – no tax is taken off when you receive them.
This doesn’t really matter that much because on their own, the amounts involved are below the threshold for paying tax (£11,850 for most people in 2018/19, which works out at about £228 per week or £987 per month). However it is important to be aware that any taxable welfare benefits you have had in the earlier part of the tax year will reduce the amount of personal allowance available to use against your earnings over the remainder of the tax year.
Provided you give your employer a P45(U) or P45(ESA), the way that PAYE works means that your tax position should work itself out by the end of the tax year. If for whatever reason this does not happen, HMRC should check the total amount of tax you have paid at the end of the tax year via the P800 process. If it is too much they will give you a refund. If it is too little they will usually try and arrange a suitable method of payment with you.
If you cannot give your employer a P45(U) or P45(ESA), you need to help your new employer understand what tax code to use by completing a Starter Checklist.
You are asked which statement applies:
- This is your first job since last 6 April and you have not been receiving taxable taxable Jobseeker's Allowance, Employment and Support Allowance or taxable Incapacity Benefit, state pension or occupational pension.
- This is your only job, but since last 6 April you have had another job, or have received taxable Jobseeker's Allowance, Employment and Support Allowance or taxable Incapacity Benefit. You do not receive state or occupational pension.
- You have another job or receive a state or occupational pension
Unless you have another job, it is important to tick box B. We explain why this is important in our website guidance ‘What is an emergency tax code?'. Ticking box A can lead to you being given the benefit of the full tax free personal allowance to set against your employment earnings, this may mean that you have an underpayment in respect of the benefits at the end of the tax year.
If you start a second job without giving up your other one, you will not get a form P45 – you should ask your new employer for a Starter Checklist to complete, and let them know that you already have another job by ticking box C. You do not have to tell your second employer where you are working or how much you are earning. Your second employer will send the relevant information to HMRC and they should review your tax code.
HMRC should issue a separate tax code to each employer telling them what tax allowances you get. Your personal allowance will normally only apply to your main job.
To avoid paying too much tax you can ask HMRC to split your personal allowance between your jobs. For example, if you do not pay tax on your earnings from your first job you can use any spare personal allowance against your other job or jobs. Note that although HMRC send a separate tax code to each of your employers, they only send you one coding notice that should mention all of your employments.
If you have got several sources of income that are taxed through PAYE it can get confusing. Check your payslips carefully to make sure you are paying the right amount of tax and receiving the correct personal allowance.
For more information and examples concerning multiple jobs, take a look at the factsheet ‘Having more than one job'.
You may also find our news piece ‘Any questions? I’m not paying National Insurance in either of my holiday jobs – how will I be affected?’ useful in understanding how having several low income jobs can impact on your entitlement to contributory benefits and the state pension.
If you change jobs
When you leave a job where you have paid tax through PAYE, your employer will give you a form P45. You should give Parts 2 and 3 to your next employer so they know what tax you have paid so far in the tax year.
If you lose your form P45, tell your new employer – they may ask you to complete a Starter Checklist. You should complete the Starter Checklist as soon as possible before your first payday, so your employer knows what tax code to use. Give the completed Starter Checklist to your employer and keep a copy for your own records. Do not send the checklist to HMRC.
If you change jobs often
It is especially important that you provide your employer with a completed Starter Checklist or form P45. If you do not provide this information, you could end up paying too much tax.
If you are leaving a job
Make sure you get a form P45 from your employer when you leave. Your employer should automatically give you a form P45 when you stop working for them. If not, ask for it – you are entitled to it by law.
If you are claiming benefits after leaving a job
If you are starting to claim Jobseeker's Allowance or Employment and Support Allowance after leaving your job, you need to give your form P45 to the DWP. They will then put the details from your paid work onto their system. If you are due a tax refund, you will not get this refunded until the earlier of:
- ceasing to claim Jobseeker's Allowance – in which case your refund comes from Jobcentre Plus;
- the end of the tax year – in which case you have to liaise direct with HMRC for your refund.
If you have got a student loan to repay and you are employed, you normally repay the loan through your wages under PAYE. This normally happens automatically the April following your graduation, provided you have started working and are earning more than the repayment threshold.
HMRC provide your employer with the information they need to deduct the right amount from your wages. In order to calculate the correct repayment it is important that you note on the Starter Checklist whether you have a Plan 1 or Plan 2 loan, if you do not know what loan you have the Student Loans Company has a useful tool to help you.
Your payslip must show how much has been deducted. It is useful to keep all your payslips while you are repaying your student loan in case there is a discrepancy about the amounts of repayments you have made.
There is more information about how you repay your student loan in our dedicated Tax Guide for Students website. Please note that that website only covers how repayments work for what are known as income-based or income-contingent loans, introduced in the autumn of 1998. The website does not look at the loans, often known as ‘mortgage-style loans’, in place before that time.
Under law, employees and ‘workers’ are entitled to certain rights, including a minimum wage.
You can find out more information about the National Minimum and National Living Wage on the page 'What is the National Minimum Wage?' and in the factsheet ‘National Minimum Wage (NMW)’ available on our Tax Guide for Students website.
Pensions are a way of helping you to save up to pay for your living costs during retirement.
The government want to encourage you to provide for your own retirement, rather than rely on the state so have introduced automatic enrolment.
You can find out more information about automatic enrolment in our website guidance. For a basic overview of automatic enrolment see our Tax Guide for Student’s factsheet ‘Pension Automatic Enrolment’.
Growth on pension savings is generally free of tax. When pensions are paid out to you they are taxable, but you should be able to take some part of the pension as a tax free lump sum.
There is more information about pensions generally, including the state pension in the ‘tax basics section’ and further information in relation to pensions and employees on our page 'Pensions and employees'.
You may be able to claim tax credits, universal credit or state benefits while you are working, depending on your circumstances.
You can find more information about tax credits and universal credit and who can claim them in our ‘tax credits and benefits section’.
What records should you keep?
You should keep the paperwork that contains details about your pay and tax, like:
- payslips and PAYE coding notices;
- forms P45 and P60;
- details of employment expenses;
- benefits in kind forms from your employer;
- information on any workplace pension scheme you join;
- information about any redundancy award or termination payment you get when your contract ends;
- notes of any tips or gratuities you get and any other taxable income or benefits that you have not already recorded somewhere else;
- details of any state benefits you have received.
If anyone (other than your employer) gives you benefits in kind for doing your job, you should keep a note of their name and address and what they gave you.
Why should you keep records?
You will need to refer to your records later if you ever need to:
- complete a Self Assessment tax return;
- claim a refund of overpaid tax;
- apply for tax credits and benefits.
How long should you keep records?
You should keep your records for at least 22 months from the end of the tax year they relate to. The tax year runs from 6 April to the following 5 April, so keep paperwork until at least 31 January nearly two years later. For example, you should keep records relating to the tax year 2018/19 (which ends 5 April 2019) until 31 January 2021 or longer if you self-employed.