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Gross and net salary

The amount you earn before tax and National Insurance are deducted is your 'gross salary'. The amount you get after tax and National Insurance has been deducted is your 'net salary'. When you get a payslip, you'll see:

As well as being taxed on your pay, you're also taxed on benefits your employer provides, such as a company car, fuel, a low interest loan or medical insurance.

You may also have to pay tax on tips you receive as part of your job.

• Tax and National Insurance on tips and bonuses

• Tax and National Insurance on company benefits

Income Tax and PAYE

Income Tax is your contribution to government spending on things like transport, health and education. How much you pay depends on how much you earn.

HM Revenue & Customs (HMRC) gives you a tax code, which you'll see on your payslip. Your employer uses your tax code to work out how much Income Tax to take off your wages through the PAYE system.

At the end of each tax year your employer will give you a form - your P60 end of year certificate - showing your total gross pay for the year and how much tax and National Insurance you've paid.

• Income Tax - the basics

• Tax codes - the basics

National Insurance contributions

You pay National Insurance contributions to build up your entitlement to a State Pension and other social security benefits. How much you pay depends on how much you earn. If you earn over a certain amount, your employer deducts Class 1 National Insurance contributions from your wages through the PAYE system.

You pay a lower rate of National Insurance contributions if you’re a member of your employer’s ‘contracted-out’ pension scheme, or you’re a married woman – or widow – who holds a valid ‘election certificate’.

Your employer also pays employer National Insurance contributions based on your earnings and on any benefits you get with your job for example a company car.

HM Revenue & Customs (HMRC) keeps track of your contributions through your National Insurance number. This is like an account number and is unique to you.

• National Insurance contributions rates and thresholds Opens new window

How much can you earn without paying tax and National Insurance?

Income Tax

Everyone can earn a certain amount each year without paying any Income Tax. This is called your Personal Allowance. In 2012-13 the Personal Allowance is £8,105. Some people can earn a bit more before they start paying tax, if they're over 65, for example.

There are a number of other allowances and reliefs you may be able to claim to reduce your tax bill - and in some cases mean you’ve no tax to pay. Follow the last two links to find out more.

• Personal Allowance - find out more

• Introduction to tax allowances and reliefs

• Tax allowances and reliefs - employees or directors Opens new window

National Insurance

You can earn up to £146 a week (2012-13) before you pay any National Insurance contributions. This is known as the 'primary threshold'.

However, as long as you earn more than £107 a week (2012-13) you can still build up your entitlement to a State Pension and certain other benefits. This is known as the 'lower earnings limit'.

Making sure you don’t overpay National Insurance

Avoiding overpayment if you have more than one job

You may be able to ‘defer’ some of your contributions to prevent an overpayment if both of the following apply:

• you pay Class 1 National Insurance contributions with two or more different employers
• you expect to pay contributions on weekly earnings of a least £817 in one job or £963 in two jobs throughout the tax year

To apply you can either complete form CA72A Application for the deferment of payment of Class 1 National Insurance contributions, or write to:

HM Revenue & Customs
National Insurance Contribution Office
Deferment Services
Longbenton
Newcastle upon Tyne
NE98 1ZZ

The deadline for applying is 14 February in the relevant tax year.

Stopping contributions if you’ve reached State Pension age

If you are over State Pension age and carry on working you will need to provide your employer with proof of your age so that you don’t continue to pay National Insurance contributions unnecessarily. You can use a birth certificate or passport or apply to HMRC or the Department for Work and Pensions for an ‘Age Exception Certificate’. To find out more read the HMRC guide ‘Making sure you’ve stopped paying National Insurance’.

• Making sure you've stopped paying National Insurance

Tax and National Insurance if you’re a director

You pay Income Tax on your earnings in the same way as other employees. However, your National Insurance contributions are worked out over an ‘annual earnings period’ – from 6 April to the following 5 April – rather than over the normal weekly or monthly periods that apply to other employees. This is to make you pay the right amount of National Insurance contributions.

More useful links

• Starting your first job: what to do about tax and National Insurance

• Tax when starting, leaving or retiring from work

• Tax allowances and reliefs - employees or directors

• Applying for a National Insurance number

Useful contacts

• Money, tax and benefits contacts