You may have to pay tax and National Insurance if you are earning above a certain limit, called a ‘threshold’, which is set each year and is £97 a week from April 2010. You can contact the tax office to find out what the current thresholds are. If your earnings fall below the lower earnings level (LEL) you will not have to pay tax or National Insurance.
These levels usually change in April at the start of each new tax year.
The tax and National Insurance contributions that you pay depend on whether you are classified as an employee, a worker or self-employed. If you are an employee, and sometimes if you are a worker, you will have your tax paid. The advantage for you is that your employer (or supplier of work) is responsible for tax and National Insurance contributions.
If you earn enough to pay these, they should be deducted from your pay and shown as itemised amounts on your pay slips. If you are earning enough to pay tax and NI, your contributions will be contributing towards entitlement to benefits such as Jobseekers’ Allowance, Statutory Maternity Pay (SMP), and the state pension. If you do not earn above the threshold, you should not have to pay tax and NI, but this means you will not be building up your contributions record, which is used to determine entitlement to these benefits.
If you are self-employed, you have to pay your own tax. The main advantage for you is that you can claim your work-related expenses against the tax that you have to pay.
This may mean that although your earnings are over the threshold, by the time your expenses are deducted, you may be below the threshold and may not need to pay tax. If you are responsible for paying your own tax and National Insurance, you should keep simple accounts of incoming wages and outgoing expenses relating to your work. If you are self-employed you will need to buy a self-employed or Class 2 ‘stamp’. This is a weekly flat-rate payment and will give you an entitlement to benefits such as Maternity Allowance, Incapacity Benefit and basic state retirement pension.
