## Learning Outcomes

- Explain how Income Tax is collected through PAYE and through Self Assessment
- Understand National Insurance contributions, what they fund, and why your NI record matters
- Know how to apply for a National Insurance number and when you need one
- Identify basic worker-related benefits and statutory payments, and who administers them
- Recognise common documents and terms you may see at work (payslips, tax code, P45, P60)

## Life in the UK Test Syllabus

For the Life in the UK Test, you are expected to understand the basics of working life, paying tax, and accessing benefits, with a focus on the following syllabus points:

- Know what Income Tax is paid on and what it helps fund, and that HM Revenue & Customs (HMRC) collects it
- Understand PAYE (Pay As You Earn) and that employers deduct the right tax automatically for most employees
- Know that self-employed people normally pay tax using Self Assessment and must complete a tax return when required
- Explain what National Insurance contributions are used for and how they affect contributory benefits and the State Pension
- Know what a National Insurance number is, who needs to apply for one, and that you can start work without one
- Identify the roles of HMRC (tax) and the Department for Work and Pensions (DWP) (benefits), including Jobcentre Plus

## Test Your Knowledge

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, look more closely at that area during your revision._

1. What is PAYE and which government department receives the money?
2. What is the difference between Income Tax and National Insurance?
3. What is a National Insurance number used for, and can you start work without one?
4. If you are self-employed, what system do you normally use to pay Income Tax?
5. Name one service funded by Income Tax and one supported by National Insurance contributions.

## Introduction

If you work in the UK, you will usually see deductions from your pay for Income Tax and National Insurance. You may also qualify for financial support in certain situations, such as being unemployed, on a low income, or unable to work due to illness.

The Life in the UK Test checks that you understand these everyday systems at a basic level: who collects tax, how it is paid, why National Insurance matters, and where benefits and support come from.

> **Key Term: HM Revenue & Customs (HMRC)**
> The government department responsible for collecting taxes such as Income Tax, and keeping records of tax paid.

### Work and getting paid: what to expect

Most people in the UK receive pay from an employer, and deductions are taken before the money reaches their bank account. Your payslip is the main record of what you have been paid and what has been deducted.

Your employment status affects both rights and responsibilities. For the Life in the UK Test, the key point is not detailed employment law, but the main systems that apply to workers and the self-employed.

> **Key Term: payslip**
> A written statement showing your pay before deductions and what has been taken off (for example, Income Tax and National Insurance).

A payslip typically shows:

- gross pay (your pay before deductions)
- Income Tax deducted
- National Insurance contributions deducted (if you earn enough and are under State Pension age)
- your tax code (often shown near the top)
- your National Insurance number (often shown as a reference)

> **Test Tip:** When a question mentions deductions “taken by the employer,” the usual answer is PAYE for Income Tax (and employee National Insurance through payroll). If it mentions “completing a tax return,” it is usually Self Assessment.

### Income Tax and PAYE

People in the UK pay tax on their income. “Income” can include more than wages.

Income Tax is paid on income such as:

- wages from paid employment
- profits from self-employment
- taxable benefits
- pensions
- income from property, savings and dividends

Income Tax helps pay for public services. Examples commonly given include roads, education, the police and the armed forces.

> **Key Term: Income Tax**
> Tax paid on income (such as wages, profits from self-employment, pensions, and some income from savings or property), which helps fund government services.

For most employees, Income Tax is collected automatically using PAYE.

> **Key Term: Pay As You Earn (PAYE)**
> The system where an employer deducts Income Tax from an employee’s wages and pays it directly to HMRC.

PAYE means:

- you normally do not need to calculate your own Income Tax
- your employer takes the tax from your wages each time you are paid
- HMRC receives the money directly

Some people still need to complete a tax return even if they are employed (for example, if HMRC tells them to). If HMRC sends you a tax return, you are expected to complete it and return it with the necessary information.

Tax codes are used to help employers work out how much Income Tax to deduct through PAYE. A code can change if your circumstances change.

> **Test Tip:** If a question asks “which department collects taxes?”, choose HMRC. If it asks “who pays benefits like Universal Credit?”, choose DWP (through Jobcentre Plus).

### Self-employment and Self Assessment

If you are self-employed, you are responsible for paying your own Income Tax. This is done through a system called Self Assessment.

Self Assessment usually involves:

- registering (when required)
- completing a tax return with details of your income and expenses
- paying the tax you owe by deadlines set by HMRC

The key Life in the UK point is the difference in responsibility:

- employees: tax is usually deducted automatically through PAYE
- self-employed: you normally pay tax yourself through Self Assessment

If HMRC requires a return from you, it is important to complete it accurately and on time. Late or incorrect returns can lead to problems, including penalties.

### National Insurance: why it matters

National Insurance is separate from Income Tax. Many people pay both, but they are different systems and fund different things.

> **Key Term: National Insurance contributions**
> Payments made by workers (including the self-employed) that help fund certain state benefits and services such as the State Pension and the NHS.

National Insurance contributions help pay for:

- the State Pension (state retirement pension)
- some contributory benefits (benefits based on contributions)
- services such as the National Health Service (NHS)

Employees normally have National Insurance deducted by their employer. Self-employed people usually pay National Insurance themselves.

A key idea for the test is your National Insurance record:

- if you do not pay enough National Insurance contributions, you may not qualify for certain contributory benefits (such as Jobseeker’s Allowance) or for a full State Pension
- some workers may not qualify for statutory payments (such as maternity pay) if they do not earn enough

This is why keeping your National Insurance record correct matters, even if you move jobs or have gaps in work.

### Your National Insurance number

A National Insurance number is a personal number used to record your tax and National Insurance contributions against your name.

> **Key Term: National Insurance number**
> A unique personal number used to ensure your tax and National Insurance contributions are recorded correctly.

In the UK:

- young people are sent a National Insurance number shortly before their 16th birthday
- non-UK nationals who live in the UK and are looking for work, starting work, or becoming self-employed will need to apply for one
- you can start work without a National Insurance number, but you should apply as soon as possible if you need one

If you have permission to work in the UK, you normally apply by telephone to the National Insurance number application line. After applying, you will receive a letter from the Department for Work and Pensions (DWP) asking you to attend an interview at Jobcentre Plus. The letter tells you which identity documents to bring.

> **Key Term: Jobcentre Plus**
> A service run by the Department for Work and Pensions (DWP) that supports people looking for work and administers certain benefits and processes (including National Insurance number interviews).

### Benefits and support: the basics you should know

The UK has different types of financial support depending on your circumstances. For the Life in the UK Test, you are not expected to calculate payments. You are expected to understand the basic purpose of benefits and the difference between contribution-based support and means-tested support.

Two important ideas:

- Contributory benefits depend on your National Insurance contributions record.
- Means-tested benefits depend mainly on your income and savings.

Universal Credit is the main working-age benefit for help with living costs for many people on a low income or out of work. It is administered by the DWP.

Jobseeker’s Allowance is often linked in test materials to National Insurance contributions and to being unemployed and seeking work (there are different versions; some are contributory).

When studying, keep the responsibilities in mind:

- You must provide accurate information on applications.
- You must follow agreed work-related steps if required (for example, job-search requirements), depending on your circumstances.

### Statutory payments from your employer

Some support is paid by employers rather than directly by the benefits system. These are called statutory payments and are set in law.

Common examples include:

- Statutory Sick Pay (SSP) for people who cannot work because they are ill
- statutory maternity, paternity, and shared parental pay for eligible parents

The exact rules can vary, but for the Life in the UK Test the key points are:

- these payments relate to employment
- eligibility depends on conditions such as earnings and employment status
- they are different from benefits like Universal Credit, which are administered by the DWP

### Common documents and terms you may be asked about

Some names appear often in UK workplace and tax questions. These can help you answer multiple-choice items quickly.

- P45: a form you get when you leave a job, showing pay and tax paid so far in the tax year
- P60: an end-of-tax-year summary given to employees who were working for the employer at the end of the tax year (5 April)
- tax year: runs from 6 April to 5 April

You do not usually need detailed figures for the Life in the UK Test, but you should recognise what these documents relate to and why they matter (proof of earnings and tax, and correct tax deductions).

> **Test Tip:** In multiple-choice questions, look for “HMRC” when the subject is Income Tax, PAYE, Self Assessment, or tax returns. Look for “DWP” or “Jobcentre Plus” when the subject is benefits and support for people out of work.

## Key Point Checklist

_This article has covered the following key knowledge points:_

- Income Tax is paid on income such as wages, self-employment profits, pensions, and some income from savings or property
- Income Tax helps fund services including roads, education, the police and the armed forces
- HM Revenue & Customs (HMRC) is the department that collects taxes
- PAYE is the system where employers deduct Income Tax from wages and pay it to HMRC
- Self-employed people normally pay Income Tax through Self Assessment by completing a tax return when required
- National Insurance contributions help fund contributory benefits and services including the State Pension and the NHS
- Employees usually have National Insurance deducted by employers; self-employed people usually pay their own contributions
- If you do not pay enough National Insurance, you may not qualify for certain contributory benefits or a full State Pension
- A National Insurance number is a personal number that records your tax and NI contributions correctly
- Non-UK nationals may need to apply for a National Insurance number, but you can start work without one
- Jobcentre Plus (part of the DWP) may interview you as part of the National Insurance number application process

## Key Terms and Concepts

- HM Revenue & Customs (HMRC)
- payslip
- Income Tax
- Pay As You Earn (PAYE)
- National Insurance contributions
- National Insurance number
- Jobcentre Plus


Everyday life services - Work, tax, and benefits (basics)