Moving to the United Kingdom can give you great prospects, but like most countries you need to pay attention to all things required of you, including your obligation to pay an income tax.
There are a few different ways that you can pay your income tax, and this page will take a careful look at each of them, to help you see what option would work best in your particular situation.
Different ways to pay tax in the UK
When it comes to the different ways to pay your income tax in the UK, the thing that will matter most in deciding your approach is your form of employment.
If you have a full-time job or are the recipient of a private or company pension program, the situation is (usually) simpler, as you will have your taxes paid for you through PAYE.
If you’re self-employed or if you work as a freelancer, on the other hand, you’ll definitely need to take a more vested interest in paying your income tax every year.
To save you lots of time and hassle let’s take a closer look at all the options available for you to pay your UK income tax;
PAYE—Pay As You Earn
If you are a full-time employee or receive a private or company pension, your income tax will be automatically deducted from your earnings by your employer or pension provider. When you’re first starting work in the United Kingdom your employer will have you fill out some paperwork in order to determine your tax code and to ensure that you’re paying the appropriate amount of tax. This information is directly linked to your national insurance number and you do need to get one ASAP otherwise you will be paying “emergency tax” – if you are British or other Nationality we show you how to do this.
Having your income tax automatically deducted through PAYE should give you a sense of security and the knowledge that you’re paying the right amount of tax. However, mistakes can always happen, which is why it’s important to be vigilant. Even if you work full-time for one employer, it doesn’t mean that you’re necessarily on the company payroll—you could be considered an independent contractor, which means you wouldn’t have your income tax automatically deducted through PAYE. To know exactly where you stand, you need to be clear about your employment status.
PROS:
- It’s easy – You don’t worry about anything, your employer is in charge of filing everything.
- It’s convenient – You don’t have to do the calculations or hang on to your paperwork.
- It’s automatic – You get to see exactly what taxes were taken from your wages by checking your monthly pay slip.
CONS:
- It’s set in stone – When you have your income tax paid under PAYE you can’t offset work-related expenses.
- It’s not fail-proof – Things can still go wrong when having your income tax paid through PAYE, which is why you need to check your documents each year.
LTD Company
If you’re self-employed or if you work as an independent contractor with a number of different employers you have the option of creating a LTD Company (Limited Company). This means that you will own your one-man company, where you will be the company director and the sole employee—in other words, you’ll have complete control.
Having full control also means that you’re solely responsible for declaring your income, paying your taxes, calculating your payroll, handling company administration and much, much more, which all boils down to a lot of paperwork. This means that you have to keep records in case the tax office asks you to complete a tax return. You’ll have to have to hang on to your non-business or personal records for a period of at least 22 months after the completion of the fiscal year to which they are connected. And, you’ll also have to hang on to business records for a period of time of 5 years and 10 months after the completion of the fiscal year to which they are connected – that can be a lot of paperwork to keep track of yourself.
PROS:
- Gives you ultimate control over your money and your company.
- Gives you the option to offset business expenses.
- Gives you the option of paying less tax by giving yourself a very small salary and then claiming dividends from the company.
- Other advantages like limiting liability (not the subject of this page)
CONS:
- You have to deal with a lot of paperwork.
- The responsibility is all yours if you make a miscalculation.
- Be sure that you meet the IR35 guidelines.
Umbrella Company
If you’re working as an independent contractor or a freelancer but you don’t want the responsibility of handling all the documentation for your tax affairs, you have the handy option of choosing an Umbrella Company service. In this scenario you would be the sole employee of your Umbrella Company—a limited company established and managed on your behalf. Entering into this arrangement will allow you to work as an independent contractor while retaining all the benefits you’d have working full-time for an employer, such as a steady income and benefits.
PROS:
- You don’t have to worry about any paperwork.
- You get a regular salary paid, as if you were a regular employee.
- You get to avoid the high costs of creating a Limited Company.
CONS:
- You don’t have control over the Umbrella Company that’s created for you.
- Salary payments may be a bit late, because they have to go through your Umbrella Company.
Deciding on the best way to pay your taxes when you’re just moving to the United Kingdom can be challenge, so take all the time you need to make sure you make the best decision for your financial future.
If you’re not comfortable dealing with fiscal matters yourself, seek out the advice of a reliable accountant who will help you understand all of your options better. For more information about the differences between paying your income tax through PAYE, a Limited Company or an Umbrella Company you will at least be able now to ask the right questions!
Don’t Forget – When moving to and working in the United Kingdom, you’ll have to also get an NI (National Insurance) number regardless and ASAP and thats what this site is all about!
Dear Sir/madam
I have been granted indefinite leave to remain last year, I am still working out side UK. I am planning to move next month to UK to settle.
I do not have an NI yet, please inform me how I can start the NI process knowing that I do not have a UK address yet.
Kind regards,
This is best way I know of – https://easyninumber.com/how-to-get-a-ni-number-online-assistance/