Juan:'I have just received my first pay slip which says how much money I have earned from working here and I am not sure how much money I am going to receive.'
Peter:'The money that the company will pay into your bank is called the net amount. Net means after taxes and other costs have been removed. So you are going receive in your bank account £2,234.'
Juan:'I see it. There's another number/figure on the payslip which says gross next to it. It's more money than the net number/figure. What's that?'
Peter:'Your gross salary or wage is the amount of money the company actually pays you. Which for you is £2,765. But this is before taxes and other costs have been deducted or removed from your salary. That's why it's higher than the money you actually receive.'
Juan:'£531 is a lot of money to pay in taxes.'
Peter:'Not really, the tax rate you pay from your salary is 25%. I know some people who have to pay a 47% tax rate.'
Juan:'But £531 isn't 25% of £2,765, it's about 19%. Have they made a mistake? Do I have to pay more tax?'
Peter:'No, in this country you are exempt from paying any income tax on the first £620 that you earn every month. Basically, you don't pay any tax on that amount. You only start to pay income tax on any money you earn over £620 per month. The amount of money where you have to start to pay tax is called the tax threshold.'
Juan:'So, I only pay income tax on the money I earn over £619 each month from my salary?'
Peter:'Yes, you are liable for paying tax over £619. You are required to pay tax over that amount (you're not exempt from paying tax).'
'You earn about £33,000 a year, don't you?'
Juan:'Yes, my gross salary for a year is about that.'
Peter:'Well, if you earn over £35,000 you enter a different tax bracket. This means that all the money you earn over £35,000 is taxed at a different tax rate. The income tax rate increases to 47%.'
Juan:'So, if I start to earn over £35,000, I pay 47% income tax on all the money I earn instead of 25%?'
Peter:'No, you would pay both tax rates. For the part of your income below £35,000 and above the tax threshold, you always pay a 25% tax rate no matter how much you earn. You only pay 47% in tax on the part of your income which is £35,000 or over.'
Juan:'OK. In Spain the government sometimes give people money back if they have paid too much tax. Does this happen here in Britain?'
Peter:'Yes, it does. It depends on how much money you have paid in taxes during the tax year.'
Juan:'Sorry to interrupt, but what's a tax year?'
Peter:'The 12 months that the government uses for claiming/collecting taxes. In this country, the tax year starts in April and finishes at the end of March. You started your job here in September, didn't you?'
Juan:'Yes, I did. I moved to Britain from Spain then.'
Peter:'Because you started your first job in Britain in September (which is in the middle of the tax year), by the end of the tax year you will have paid more income tax than you should have. You should get you a tax refund, where the government gives you back your overpaid taxes. When you have paid less tax than you should during the tax year, the government will ask you to pay them money and this is called a tax demand.'
Juan:'Do I have to fill in a form to tell the government how much money I have earned at the end of the tax year?'
Peter:'In Britain you don't have to do a tax return to tell the government how much money you have earned, our company will do it for you. It's normally only self-employed people (who work for themselves) and companies who have to do a tax return and send it to the government.'