Income Tax & NI Help Please?

dandino_uk · Feb 27, 2010

Hi all,
I am receiving a monthly payment from my pension due to taking up an early retirement pakage. I am now employed by my brother who started up in business quite recently and am his first PAYE eployee. What we would like to know is

(a): does my brother as my employer have to contribute anything towards my Income Tax like he does with my National Insurace?

(b): when calculating my National Insurace contributions should my brother work on 11% of my total gross earnings i.e. my wages earned in
his employ plus my pension income?

We are both unsure as to whether i should pay NI on my pension income, or whether I pay a different rate of NI on my pension income?

Any Help Greatly Appreciated
Dan

Ray Coman · Feb 27, 2010

Yes, as you are receiving a pension you are not likely to have personal allowance and therefore you will be liable to inome tax on your income. It is up to your brother to deduct tax at source under PAYE.

You mentioned early retirement. You are not liable to employee's national insurance until you reach retirement age, however you continue to be liable to employer's national insurance.

I advice using a simple payroll software as this will help you to make sure that your net pay is correct, based on your age, tax code and earnings.

dandino_uk · Feb 27, 2010

Thanks very much Ray.

So I'm taxable on my total income but only liable for N I on my current employment income. That sounds plain enough.

Dan

Jaykay · Feb 27, 2010

Hi.

Tax and National Insurance are calculated differently.

For tax, you have a personal allowance which you can allocate where you like. If you make no allocation then the Inland Revenue will allocate it where they want, this is normally to the highest source of income.

Assuming you are under 65, your allowance is £6,475 this year. Presumably this has been allocated to the pension as that is in place first. For any income from any other source, the tax should be deducted at basic rate on every pound earned. You can get clever if your pension is less than £6,475. If it is (say) £2,500 then you can allocate 2,500 there and the balance against your other income.

National Insurance is an ancient and antiquated system still stuck in the dark ages. Each source of income is looked at separately. The income you have from your brother has its own NI deducted and any other source has its own NI deducted. You could end up with 2 lots of NI - or none if you earn lowish amounts on each! NI for each source is calculated separately and has no connection with any other.

dandino_uk · Feb 28, 2010

Thanks very much for your reply Jaykay it was very helpful.

The way I see it is that I'm taxed on my total income, and as you suggested my allowence is used on my pension income, therefore all of my income earned under my brother is taxed.

As for my N I, I'm liable for 11% on everything I earn over £110 per week excluding my pension, and my brother is liable for 12.8% on averthing I earn over £100 per week excluding my pension.

So I do not have to pay N I on my pension income. I think I have all that right? Please let me know if I have it wrong.

Dan

RAL · Mar 1, 2010

Jaykay said:
Hi.

Each source of income is looked at separately. The income you have from your brother has its own NI deducted and any other source has its own NI deducted. You could end up with 2 lots of NI - or none if you earn lowish amounts on each! NI for each source is calculated separately and has no connection with any other.

Not quite correct. If you are paying ni on two jobs or self employed and employed are put together.! If over paid you can claim NI.

To Dan, There is no NI on pension, hence just NI on jobs until reaching penionable age.

elaine@cheapaccounting · Mar 1, 2010

I think to add to this - your brother needs to get up to speed with what being an employer means, how to calculate wages, the employer annual return etc

HMRC offer free courses on this:

http://www.hmrc.gov.uk/bst/advice-team-events/work1.htm

and read this:

http://www.hmrc.gov.uk/paye/intro/

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Income Tax & NI Help Please?

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