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Under the Pay as You Earn (PAYE) system, employee pay is taxed at source. But what happens when your payslip shows no tax deductions? Below, we clarify a situation that baffles some employees—why am I not paying tax on my wages UK? If you ask the same, read on.
Why Do I Not Pay Tax on My Wages?
Normally, income tax and National Insurance (NI) are automatically deducted from the payroll. These may be the reasons you do not see any PAYE tax deductions in your paycheck:
- Your salary is within the tax-free threshold.
- It is your first employment, and you still have not been paid enough to earn taxable income.
- HMRC lacks proper information to assign you the right tax code.
For the last two scenarios, HMRC may either not tax you at all or put you at an emergency tax code, which is the total opposite—you are taxed more than you owe. Always ensure you have the right tax code from the beginning to avoid getting taxed incorrectly.
Check if you are also paid correctly by your employer. Visit our article: UK Minimum Wage 2024: New Rates & How to Check Your Pay.
When Should I Be Paying Tax on My Wages?
A rule of thumb is that once your income exceeds the tax-free threshold, you are charged income tax and Class 1 National Insurance. Your employer then deducts these taxes directly from your paycheck. For the 2024/25 tax year, you pay:
- Income tax when your annual income is over £12,570 (personal tax allowance).
- Class 1 National Insurance contributions if you earn more than £242 every week.
Personal tax allowance applies to almost every taxpayer in the UK, except for those who start earning more than £100k. For more information, read our simplified guide for PAYE beginners about Personal Tax Allowance [2024/25].
How Much Do You Get Taxed on Wages UK?
It is not only wage or salary that counts toward your income tax bill. Other sources are also calculated into your liability, such as if you have certain company perks or benefits in kind, most types of pensions in the UK, or other self-employment incomes. Totaling these, you can get your gross income and calculate how much tax to pay.
The income tax rates for the 2024/25 tax year are as follows:
| Tax Bracket | Taxable Income | Income Tax Rate |
|---|---|---|
|
Personal Allowance |
Up to £12,5700 |
0% |
|
Basic Rate |
Between £12,571 and £50,270 |
20% |
|
Higher Rate |
Between £50,271 and £125,140 |
40% |
|
Additional Rate |
More than £125,141 |
45% |
Take note that the above rates only apply to you if you work in England, Wales, and Northern Ireland. Scotland follows six tax bands. See our Income Tax Rates 2024/25 guide as it includes the Scottish rates.
Pro-Tip: You can use our income tax calculator to get an idea of your bill, but for accuracy, it is highly recommended that you get assistance from a tax accountant.
How Do I Get My Tax Bill Right?
Getting the right tax code from the outset is crucial unless your annual salary is less than the tax-free threshold. One way to do so is securing your P45 form. This form tells your tax code, and you must ensure it is handed from your former employer to the next.
A wrong tax code can end up with you either underpaying or overpaying tax. Whilst you can get rebated through tax return for overpayment, it is a hassle to wait until the next tax year for the refund. If you have made an underpayment, you might anticipate getting a K tax code the next tax year. Learn more about the reasons you might get a K tax code here.
Other FAQs on UK Tax
Overpaying tax is prevalent, especially if you were given an emergency tax code or for other reasons. See our guide about this for a full understanding about tax rebate UK.
If your tax affairs are simple, you can ask HMRC, a registered trusted helper family or friend, tax charities, or Citizens Advice. Approach tax advisors for more complicated matters.
Non-taxable incomes include dividends and interests income from Individual Savings Account (ISA) or from investments held in a Personal Equity Plan (PEP) Premium Bonds, student loans, incomes within allowances (e.g., trading allowance, dividend allowance, etc.), and others.
There are a lot of tax saving tips UK, including giving gift aid donations to Community Amateur Sports Clubs (CASCS), transferring personal allowance to a spouse, using tax-reducing investment strategies, and more.
This depends on several factors, including your employment status, allowance eligibility, type of earnings, and more. See our comprehensive guide for complete details: How Much Can You Earn Before Paying Tax in the UK?
How Can Tax Accountants Help?
Why am I not paying tax on my wages UK? The simplest answer is—because your income is less than the tax-free limit, which means you are not obliged to pay. But if it is because of other reasons, such as getting the wrong tax code, you will need to be proactive about it.
If you think it is more than you can handle, tax accountants will be a huge help. Legend Financial’s tax advisers can be your most valuable tax and financial ally. There are so many ways you can optimise your tax situation to increase your take-home pay, and many other means to relieve tax headaches. See how we can effectively help you. Talk to us today!
