Tax and National Insurance

As an international student who has taken up residency in the UK, you are subject to tax under the same rules and regulations as a UK residence. Broadly, under the UK system you are liable to UK taxation on your worldwide income if you are resident in the UK for tax purposes. 

Your personal allowance (your HMRC issued tax code) will define how much tax you pay and how often. Payroll is not run annually, it is instead run on a cycle set by the employer, such as weekly or monthly. Therefore, any tax-free allowance is shared evenly across the pay cycle. 

Your tax code is used by your employer to work out how much Income Tax to take from your pay or pension. HM Revenue and Customs (HMRC) will tell them which code to use.

Your tax code is made up of several numbers and a letter.

1257L is the tax code currently used for most people who have one job or pension.

HMRC will usually contact you to explain how they worked out your individual tax code if your tax code changes.

What the numbers mean:

• The numbers in your tax code tell your employer or pension provider how much tax-free income you get in that tax year.

• HMRC works out your individual number based on your tax-free Personal Allowance and income you have not paid tax on (such as untaxed interest or part-time earnings). They also consider the value of any benefits from your job (such as a company car).

What the letters mean:

• Letters in your tax code refer to your situation and how it affects your Personal Allowance.

Letters and what they mean:

L - You’re entitled to the standard tax-free Personal Allowance

T - Your tax code includes other calculations to work out your Personal Allowance

BR - All your income from this job or pension is taxed at the basic rate (usually used if you’ve got more than one job or pension)

If your tax code has ‘W1’ or ‘M1’ or ‘X’ at the end

These are emergency tax codes.

Your personal tax allowance can also be split out between multiple jobs

If you think you are on the wrong tax code you should contact HMRC immediately on  0300 200 3300 to explain your current situation.

1. My Tax Code is 1150L – This means my annual tax-free allowance is £11,500 (1150 x 10)

2. My employer pays me weekly – This means my weekly tax-free allowance is £221.15 (£11,500 / 52)

3. How the tax is calculated – The first £221.15 I earn is entirely tax-free, charged at a rate of 0%. Any amount earned above the £221.15 is taxable.

4. Say I earn £300.00 – I only pay 20% PAYE tax on the difference between my earnings and my tax-free allowance for the week (£300.00 – £221.15 = £78.85), which would generate £15.77 (£78.85 * 0.20) PAYE tax.

The key item to remember is that you don’t pay tax on all the £300.00, just any amounts over and above the allowance.

If you have more than one job, HMRC can take you allowance (1257L) and split it out between your job(s), for example, if you have 2 jobs, HMRC can split the tax code so that in each job your have a fair split of tax free income so each job would see 628L as its tax code.

Check out our pension page on the staff LUU intranet

LUU Intranet - Pensions