Statutory deductions – What Are they?

In the UK a P60 statement is issued to taxpayers at the end of every tax year listing gross income earned. A P60 should be issued by the employer by 31st May each year. E.g. a P60 for the tax year ended 6 April 2021 should be issued to the employee by 31st May 2021.

Statutory deductions are shown on the P60 statement listing deductions paid at source by the employer.

Statutory deductions include:

PAYE income tax
National Insurance contributions
Student loans
Attachment of earnings deduction orders

A P60 should be retained for proof of earnings and is useful when completing a self-assessment tax return.

Income Tax

PAYE (Pay As You Earn) income tax gets deducted by the employer from your monthly salary. Under RTI regulations is the employer’s duty to ensure that HMRC receives the employee’s information on time.

  
        Income Tax Rates 2024/25

      Band
      Taxable Income
       Tax Rate
           
       Personal Allowance      
      Up to £12,570
           0%
        
       Basic Rate      
      £12,571 to £50,270
       20%      
                
       Higher Rate      
      £50,271 to £125,140
       40%      
                  
       Additional Rate      
      Over £125,140
       45%

National Insurance

National Insurance contributions (NIC) are statutory deductions which allow a taxpayer to qualify for certain benefits and the State Pension.

NIC contributions are affected by factors such as self-employment status which will determine the NIC level. NIC contributions are mandatory from age 16 until you reach State Retirement age.

A – Standard Rate NI, Employees pay 12% and then 2%

C – For employees who have reached state retirement age. No NI is due.

  
        Employee National Insurance Rates 2024/25

      Category
      £123 to £242 p/w (£533 to £1048 p/m)
       £242.01 to £967 p/w (£1,048.01 to £4,189 p/m)
             Over £967 p/w (££4,189 p/m)
           
       A      
      0%
           8%
       2%      
   
       B      
      0%
       1.85%      
      2% 
           
       C      
      N/A
       N/A      
      N/A 
            
       H      
      0%
       8%      
       2%

       J      
      0%
      2%      
      2%   
    
       M      
        0%
       8%      
       2%

Student Loans

Deductions on student loans are only required if employee’s income is over £ 27,295 per year (as at 2021). Loan payments are capped at 9% of income above the £ 27,295 threshold. Plan 1 loans refer to a loan taken out by English or Welsh students before 1 September 2012, or a Northern Irish student who started an undergraduate or postgraduate course anywhere in the UK on or after 1 September 1998. Plan 2 refers to a student loan taken out from September 2012 onwards, in England or Wales.

  
        Studen Loan - Repayment Plan 2 (Started Course Between 1/9/2012-31 July 2023)

      Income each year before tax
      Monthly Income Before Tax
       Approx. Monthly Repayment
           
       £27,295      
      £2,274
           £0.00
        
       £28,000      
      £2,333
       £5.00      
                
       £29,500      
      £2,458
       £16.00      
                  
       £31,000      
      £2,583
       £27.00      
      
       £33,000      
      £2,750
       £42.00

Deductions from your pay

Employees are protected by law from unauthorised salary deductions. Employers can only make deductions from your pay under certain conditions and the deduction should not reduce your pay to below National Minimum Wage:

Statutory deductions e.g., National Insurance, income tax or student loan repayments deductions.
Voluntary deductions – with written consent
Contractual deductions.
Overpayment deductions or expenses.
Deductions where have not worked due to taking part in a strike or industrial action
Deductions requested via a court order (i.e. child maintenance)
Holiday pay deductions (if employee has taken too much annual leave).
Wage advance deductions.

Navigating the legal requirements for statutory deductions can be complicated – outsourcing to a specialist company is often a cost-effective solution for business large and small to provide compliant employee calculations.

Other deductions from your pay may include pensions. As part of the Pensions Act 2008, the auto enrolment (AE) pension scheme was phased in from 20212 as a workplace pension scheme. Designed to help people save for retirement, the AE scheme requires employers to asses their employees eligibility to be automatically enrolled into a workplace pension in which employees and employers make minimum contributions to a pension pot.

Contact our team today to discuss how we can help your business reduce risk and increase efficiency by outsourcing your payroll. Call: O142O 544 444

Mascolo & StylesSeptember 15, 2021