United Kingdom Payroll Information – Deel Global Payroll

Updated on: 2025/08/04 14:35 (UTC)

Overview

The United Kingdom (U.K.), whose full name is the United Kingdom of Great Britain and Northern Ireland, is a unitary state that primarily consists of the constituent countries of England, Northern Ireland, Scotland, and Wales. The capital city of the United Kingdom is London. The same employment laws and employment-related taxes generally apply throughout the constituent countries of United Kingdom, with few exceptions, and taxes are collected by Her Majesty’s Revenue & Customs (HMRC). The primary part of the United Kingdom constitutes the majority of the land area of the British Isles, with England primarily situated in the middle and southern parts of Great Britain, Wales primarily situated in the western part of Great Britain, Scotland primarily situated in the northern part of Great Britain, and Northern Ireland situated in the northeast of the island of Ireland and bordered by the Republic of Ireland, which comprises the majority of the island of Ireland’s land area. Scotland also includes four major archipelagos: the Inner Hebrides to the west and northwest of mainland Scotland, the Outer Hebrides to the northwest of the Inner Hebrides, the Orkney Islands to the northeast of mainland Scotland, and the Shetland Islands to the northeast of the Orkney Islands.

Numerous additional jurisdictions are part of the United Kingdom with the status of British Overseas Territories, such as Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, and the Turks and Caicos Islands. Despite their status as crown dependencies of the United Kingdom, the jurisdictions of Guernsey, the Isle of Man, and Jersey are not formally part of the United Kingdom, although the United Kingdom has the responsibility of overseeing them. Many of the British Overseas Territories and the three crown dependencies have tax and employment requirements that differ from those in effect for the constituent countries of the United Kingdom. This primer covers payroll provisions of the United Kingdom as in effect for England, Northern Ireland, Scotland, and Wales.

The primary spoken and written language used in the United Kingdom as a whole is English. The Irish language endemic to Northern Ireland, Scottish Gaelic language endemic to Scotland, and Welsh language endemic to Wales all use an alphabetic writing system with Latin script. In their modern forms, with exceptions for loanwords, Irish and Scottish Gaelic use 18 letters of the English alphabet (all except j, k, q, v, w, x, y, and z). Irish has a singular accent mark, the síneadh fada, which looks identical to an acute diacritic. The single accent mark for Scottish Gaelic, the grave accent, no longer is commonly used. The Welsh language in its modern form, with exceptions for loanwords, uses 29 letters, including 21 letters of the English alphabet (all except k, q, v, x, z) and eight digraphs (Ch, Dd, Ff, Ng, Ll, Ph, Rh, Th), and uses three accent marks: the acute diacritic, the grave accent, and the circumflex. The directionality that is used for written Irish text, written Scottish Gaelic text, and written Welsh text, as is used for English writing, is progression along horizontal lines from left to right, with successive horizontal lines read from top to bottom. Northern Ireland is known as Tuaisceart Éireann in the Irish language; Scotland is known as Alba in the Scottish Gaelic language; and Wales is known as Cymru in the Welsh language, which itself also is known as Cymraeg.

The United Kingdom’s standard currency is the British pound sterling.

Until Jan. 31, 2020, the United Kingdom was a member of the European Union, an economic and political partnership among 27 European countries. On March 29, 2017, the Parliament of the United Kingdom informed the European Council of its intention for the United Kingdom to leave the European Union, which started a negotiation process between the U.K. and the EU to implement the departure.

Employers are primarily responsible for the deduction of income taxes, National Insurance contributions (NICs) and other deductions such as student loan payments and pension plan contributions from an employee’s salary or wages and for the payment of these sums to HMRC under a system known as Pay As You Earn (PAYE). The U.K. tax year runs from April 6 to April 5.

Minimum levels of compensation, benefits, and worker protections in the United Kingdom are set by law; employment contracts may provide for higher levels of benefits. The Working Time Regulations of 1998, as amended, govern work hours and annual leave.

Foreign workers, who generally are admitted to work in the United Kingdom under a points-based system, are covered by labor laws, are entitled to minimum wage, must pay income tax and generally have National Insurance contributions (NICs) deducted from their pay by their employers. However, a worker from a European Economic Area country and Switzerland has an automatic right to work in the United Kingdom, does not require a visa and does not contribute NICs if he or she has a certificate from their home country confirming that they pay national insurance there.

U.K. residents working in the United States are covered by U.S. tax law with possible treaty and work status exclusions applying. Work within the U.S. states and territories is covered by various labor laws.

News articles regarding payroll in the United Kingdom are available in

CURRENCY DETAILS

The standard currency of United Kingdom is the British pound sterling (£), also known as the Great Britain pound, the United Kingdom pound, and the British pound, and also known in the U.K. as the pound sterling or simply as the pound. The internationally recognized three-letter currency code for the British pound sterling is GBP, which is an abbreviation of Great Britain pound and also is one of the currency’s commonly used currency symbols. The plural form of British pound sterling is British pounds sterling.

When an amount of British pounds sterling is written using the general pound currency symbol £, the symbol precedes the numerical value with no space between the numerical value and symbol. Among all pound currencies, the general pound currency symbol £ is most prominently used for the British pound sterling, but to distinguish British pounds sterling from other pound currencies, the currency symbols GB£ and UK£ sometimes are used. When an amount of British pounds sterling is written using currency symbol GB£ or the currency symbol UK£, the symbol precedes the numerical value with no space between the numerical value and symbol.

When an amount of British pounds sterling is written using the currency symbol GBP, the symbol precedes or follows the numerical value with a space between the numerical value and symbol.

One hundredth ( ¹ ⁄ ₁₀₀ ) of a British pound sterling is referred to as a penny, with the standard plural form of pence, although the plural form pennies is used to refer to multiple coins with the denomination of 1 penny.

Some of the British Overseas Territories do not use the British pound sterling as their official currency, such as Bermuda, which uses the Bermudian dollar (primary symbol: BD$; currency code: BMD), and the Cayman Islands, which uses the Cayman Islands dollar (primary symbol: CI$; currency code: KYD).

TAXES

Employers must report all payroll information—income taxes as well as social taxes and hours worked—each time an employee is paid under a system called Pay As You Earn (PAYE) in real time. Electronic real-time information (RTI) reports through the online system must include taxes and deductions to Her Majesty’s Revenue & Customs (HMRC).

Scotland sets its own rate of income tax. Effective since April 6, 2019, the government of Wales has a role in setting income tax rates for Welsh taxpayers.

Nearly all employers must use RTI to report payroll information online. Only a few employers, such as religious societies or orders whose beliefs are incompatible with the use of electronic methods of communication, may continue to report on paper. Employers of a domestic care or support services employees that work at or from their home are exempted only if the services are provided to the employer or a family member; the recipient of the services has a physical or mental disability, is elderly or infirm; the employer did not receive a tax-free payment in respect of online filing in the preceding three years; and the employer, not a relative or accountant, files the return. Employers exempt from filing online must operate RTI on paper.

The United Kingdom’s collection of payroll publications for employers, including Publication CWG2: Further Guide to PAYE and National Insurance Contributions, is available from the government.

The U.K. tax year runs from April 6 to April 5.

Off-payroll workers: Workers who provide services to employers indirectly, such as through their own company or another intermediary, but would be considered employees if they were directly employed by the employer, are known in the U.K. as off-payroll workers. Legislation governing off-payroll workers, often called IR35, is designed to ensure that off-payroll workers pay the same amounts of income tax and social taxes as employees.

Effective starting April 6, 2021, medium and large private-sector employers, defined as those that fulfill at least two out of three thresholds of £10.2 million in annual sales, a net worth of £5.1 million, or more than 50 employees, are responsible for determining whether off-payroll workers who provide services to the employer are considered to be employed or self-employed for tax purposes. If an off-payroll worker is determined to be employed, the employer or other payor of the worker’s intermediary must withhold income tax and employee National Insurance contributions and pay employer National Insurance contributions.

Effective until April 5, 2021, only public-sector employers were responsible for determining the status of off-payroll workers, while the intermediary through which an off-payroll worker provides services was responsible for determining a worker’s status when work was performed for private-sector employers.

Employers must issue a written determination of a worker’s status, often called a status determination statement, to the worker and the worker’s company or other intermediary.

Income Taxes

Coverage: Businesses employing workers in the United Kingdom, even those self-employed, are covered and are obligated to withhold and pay taxes under the real time or RTI system.

Employees: U.K. residents are subject to U.K. tax on their worldwide income.

The United Kingdom administers a statutory residence test to determine residency.

An individual meets one of the overseas tests if he or she:

was a resident of the U.K. for one or more of the three preceding tax years and spent fewer than 16 days in the U.K. in the current tax year,
was a resident of the U.K. for none of the previous three years and spent fewer than 46 days in the U.K. in the current tax year, or
worked full-time overseas, spending less than 91 days in the U.K. in the current tax year and spent less than 31 days working while in the U.K.

An individual meets one of the following automatic U.K. tests and is considered a U.K. tax resident if he or she:

spends 183 days or more in the U.K. in the current tax year,
owns a home in the U.K. and either has no home in another country or spends less than 30 days in that home and spends 91 consecutive days in the U.K., 30 days of which fall in the current tax year, or
works full-time in the U.K. for 365 days, with no breaks longer than 30 days, with all or part of that 365 day period falling in the current tax year.

Currently, a person who lives in the United Kingdom but is either domiciled abroad or not ordinarily resident in the United Kingdom pays taxes on foreign-sourced income and gains either on an “arising basis” or a “remittance basis.” Individuals who have been residents in the UK for at least 15 of the past 20 tax years are deemed U.K.-domiciled for tax purposes.

Rates and Thresholds: Income tax rates are levied on a progressive scale, with rates ranging from 20% to 45%. In the country’s progressive income tax system, portions of an individual’s income are allocated to the country’s personal income tax brackets, and each portion of income allocated to a tax bracket is taxed at the tax rate applicable to that tax bracket. Each of the United Kingdom’s tax brackets has a name that describes the bracket. The names of the three progressive income tax rates generally applicable in the U.K. are the basic, higher, and additional rates, and the additional rate also is known as the top rate.

Employees in the United Kingdom are able to earn an amount of income each year that is excludable from income tax, and this amount is known in the United Kingdom as a personal allowance. As per the availability of the personal allowance, the United Kingdom’s income tax brackets are commonly presented by the government in two ways, one with only taxable income included, and one with the standard personal allowance included as part of overall income. In some years, the standard personal allowance available to employees varies by age.

Note: The income tax higher rate threshold, standard personal allowance, and National Insurance upper earnings limit are planned to remain unchanged from April 6, 2021, to April 5, 2026.

Effective from April 6, 2021, to April 5, 2023, the standard personal allowance for the tax year is £12,570, equivalent to £242 per week or £1,048 per month.

The United Kingdom’s personal income tax rates and minimum and maximum amounts of annual income for a taxpayer with the standard personal allowance in each tax bracket, in effect from April 6, 2021, to April 5, 2023, are as follows:

Range of Annual Taxable Income (British Pounds Sterling)	Range of Annual Total Income Including Standard Personal Allowance (British Pounds Sterling)	Income Tax Rate	Name of Tax Bracket
Up to £37,700	Up to £50,270	20%	Basic Rate
More than £37,700 and up to £150,000	More than £50,270 and up to £150,000	40%	Higher Rate
More than £150,000	More than £150,000	45%	Additional Rate

HMRC provides employers with amounts that are required to be withheld from each pay based on employee data. If the taxpayer’s income is over £100,000, the personal allowance is reduced by £1 for every £2 over that limit. Thus, the personal allowance can be reduced to zero.

Effective starting April 6, 2021, with a standard personal allowance for the tax year of £12,570, an individual would need to earn at least £125,140 during the tax year to be totally ineligible for a personal allowance for the tax year. Effective from April 6, 2019, to April 5, 2021, with a standard personal allowance for the tax year of £12,500, an individual needed to earn at least £125,000 during the tax year to be totally ineligible for a personal allowance for the tax year.

Separate personal income tax brackets are in effect for residents of the United Kingdom’s constituent country of Scotland, and residents of Scotland are assessed personal income tax based on these brackets instead of the aforementioned brackets that are generally applicable. Effective since April 6, 2019, the government of Wales determines a rate of taxation for Welsh taxpayers that offsets a reduction of 10 percentage points in the national income tax rates payable by Welsh taxpayers. The personal income tax brackets for residents of Scotland, and Welsh income taxation, are detailed in the State/Jurisdiction Taxes section of this primer.

Registration: New employers must register with HMRC and can do so up to four weeks in advance of the first pay day. After registering, an employer will receive a reference number and an Accounts Office reference number from HMRC.

Taxable Amounts: Taxable remuneration, above the personal allowance; includes wages or salary, fees, bonuses and commissions, holiday pay, statutory sick pay, statutory maternity pay, statutory paternity pay and statutory adoption pay.

Cash tips, including pooled tips, that are given voluntarily by a customer to an employee are not taxable wages in the United Kingdom.

The employee may be subject to income tax on certain noncash benefits, such as a company car available for private use, living accommodations, or employer-paid medical insurance. Generally an employee is subject to income tax on the value of the benefit provided. The employer also may be required to make National Insurance contributions (NICs) on the benefits provided. However, the provision of noncash benefits is complicated and different conditions apply to different benefits.

In the context of payroll in the United Kingdom, the process of “making good” on benefits-in-kind involves employees providing their employer with an amount of payment in connection with benefits-in-kind received from the employer, with the employees’ payment to their employer reducing the taxable value of the benefits-in-kind. Employees that did not make good on benefits-in-kind as part of the Pay-As-You-Earn process of withholding tax on income from employment generally must make good on those benefits by the July 6 directly following the tax year during which the benefits-in-kind were provided for reduction of taxable income to be applicable.

Employers cannot offer benefits such as health screening, mobile phones, computers and major appliances under “salary sacrifice,” referring to an agreement under which an employer and an employee change the terms of an employment contract to reduce the employee’s entitlement to cash in exchange for the benefits.

The taxable value of benefits in kind provided to employees varies among the types of benefits in kind. In the United Kingdom, the acronym BiK often is used for benefits in kind. Many types of benefits in kind may be provided to employees through an optional remuneration arrangement (OpRA), which is a benefits arrangement in which an employee agrees to receive one or more types of benefits instead of actual or potential payment of cash salary or wages, or instead of the right to actually or potentially receive a cash allowance. The taxable value of a benefit in kind provided through an OpRA generally is the higher of the cash foregone to acquire the benefit or the taxable value under normal benefit in kind rules. However, that general calculation of taxable value does not apply to pensions, pension advices, applicable childcare, cycle-to-work schemes, and cars with emissions of up to 75 grams of carbon dioxide per kilometer. That general calculation of taxable applies, starting April 6, 2021, to cars with emissions greater than 75 grams of carbon dioxide per kilometer, school fees, and living accommodations.

Income tax and National Insurance contributions apply to the portions of termination payments that are payments in lieu of notice (PILON) regardless of whether they are contractual payments.

Withholding Methods: Every employee must have a tax code and a National Insurance number, which are used in the PAYE and RTI systems.

The tax code, which is issued by HMRC, is usually one to three numbers followed by a letter and is used to determine withholding amounts. The number in the tax code represents the total of all available allowances, less any amount to be deducted to cover other income or benefits. The letter indicates either a tax rate or tax rates applicable to the employee, or tax allowance availability applicable to the employee. Among HMRC’s current tax codes is “S”, which indicates that an employee is a Scottish taxpayer whose income therefore is taxed using the Scottish rates of income tax. Effective since April 6, 2019, the tax code “C” is used to indicate that the taxpayer is a Welsh taxpayer whose income therefore is taxed using the Welsh rates of income tax, with “C” an abbreviation of Cymraeg, the Welsh-language equivalent of the adjective Welsh.

The National Insurance number is used to keep track of NICs.

An employer with nine or fewer employees can download and use HMRC’s Basic PAYE Tools that calculate deductions and file RTI returns with HMRC. However, the tools have limitations and cannot produce payslips.

Larger employers use commercial software or outsource to payroll providers. HMRC maintains a list of commercial products that are compatible with online reporting and can perform a range of RTI payroll tasks.

Returns and Remittances: Under the United Kingdom’s PAYE in real time or Real Time Information (RTI) system, an employer must send information to HMRC online about deductions and payments each time an employee is paid in a return called a Full Payment Submission (FPS). Employers must electronically submit the information in real time using the PAYE Online service provided by HMRC.

A tax payment associated with an FPS must be paid by the applicable date in the tax month after the tax month when the FPS was required to be submitted, with each tax month starting on the sixth day of a calendar month and ending on the fifth day of the next calendar month. The applicable tax payment due date in a tax month generally is the 22nd day of the calendar month, although the due date is the 19th day of the calendar month if the payment is submitted by post.

Previously, an employer was required to submit only a year end return about PAYE taxes, deductions and NICs to HMRC.

An employer must provide each employee and pension recipient with a year-end summary of total pay, taxes, NICs and deductions in either electronic or paper form by May 31. This requirement remains the same under RTI. The form that must be used for transmitting this information to employees is Form P60, End of Year Certificate.

Payments may be made quarterly if average monthly payments are likely to be less than £1,500.

Employers generally must report for each employee data regarding benefits in kind the employee was provided from April 6 of one year to April 5 of the next year using Form P11D, Expenses and Benefits, which is due by July 6 following that period. For each employee, a copy of the employee’s Form P11D must be provided to the employee and a copy must be provided to HMRC by the due date of July 6. Employers as an alternative to using Form P11D may use the Payrolling Benefits in Kind (PBIK) system to fulfill the benefits in kind data reporting requirement.

Payrolling Benefits-in-Kind system: Benefits or expenses processed through payroll can be registered with the online real-time reporting service, Payrolling Benefits in Kind (PBIK). Employers that register for the service no longer need to file P11D forms for each employee.

An employer’s registration to use the online real time reporting service must be completed before the first period from April 6 to April 5 during which the employer is to use the service.

Employee Share Plans: There are several types of approved employee share schemes in the U.K. The four statutory plans that have an effect on tax revenues include: Share Incentive Plans, Save As You Earn (SAYE) Plans, Company Share Option Plans and Enterprise Management Incentive Schemes. Employers may offer company shares through these schemes to give employees a tax advantage, such as not paying Income Tax or National Insurance on their value.

Share Incentive Plans (SIPS): Employees who receive shares through this plan and keep them for a minimum of five years are not required to pay income tax or National Insurance on their value. An employer can offer an employee up to £3,600 of free shares in any tax year. Employees can buy shares out of their salary before tax deductions up to either £1,800 or 10% of their income for the tax year, whichever is lower. Employers can give employees up to two free matching shares for each partnership bought.

Save as You Earn (SAYE): This is a savings-related share scheme where employees can buy shares with their savings for a fixed price. Employees can save up to £500 a month under the scheme. At the end of a savings contract (three or five years), employees can use the savings to buy shares. Tax advantages include the interest and any bonus at the end of the scheme is tax-free and employees do not pay income tax or National Insurance on the difference between what is paid for the shares and what they are worth

Company Share Options Plans (CSOPs): Employees in this scheme have the option to buy up to £30,000 worth of shares at a fixed price. Employees do not pay income tax or National Insurance contributions on the difference between what is paid for the shares and what they are actually worth.

Enterprise Management Incentive Schemes (EMIs): If an employee works for a company with assets of £30 million or less, he or she may be able to join the Enterprise Management Incentives (EMIs). Employees can buy shares of up to £250,000 without paying income tax or National Insurance on the difference between what is paid for the shares and what they are actually worth.

Employers must file a required form at the end of the tax year for each statutory scheme, which are available on the HMRC website. Any employment related securities that result in employee benefits are subject to tax, and if there has been no activity from a scheme during a year, a nil return is still required. Forms for filing returns are named after the schemes as follows: Share Incentive Plan, SAYE Option Scheme, Company Share Option Plan (CSOP) and Enterprise Management Incentives.

If employees received securities or interests in securities through a scheme other than the statutory schemes, employers are required to file Form 42. This form can also be used to employees in the EMI scheme if shares are issued at over £250,000 over the statutory limit. The deadline for submitting Form 42 is July 6 following the tax year in question and it is also required for those employers with internationally mobile employees in unapproved schemes.

Employees’ benefits that are subject to PAYE are accounted for through payroll. If they are not accounted for through payroll, employees must submit a self-assessment tax return. Employees can register to receive a self-assessment tax return form by filing form SA1, available on the HMRC website.

Recordkeeping: The HMRC generally recommends that records should be kept for six years. In regards to PAYE records, HMRC requires employers to maintain records for three years.

Penalties: Under the current scheme, there is no penalty for the first month of failure to pay. Subsequent penalties for employers who fail to make a return on or before the filing date are:

one to nine employees: £100;
10 to 49 employees: £200;
50 to 249 employees: £300; and
at least 250 employees: £400.

For inaccurate returns, penalties are based on the behavior that led to the error and the amount of potential lost revenue for the FPS that was incorrect. Penalties for errors due to failure to take reasonable care can be reduced to zero with full and unprompted disclosure to HMRC.

However, RTI does not change obligations to make payments on time to HMRC. Penalties for late payments are calculated according to the amount that is late and how many payments are late during a tax year:

one to three defaults: 1% of the total amount that is late in the tax year (ignoring the first late payment in that tax year);
four to six: 2%;
seven to nine: 3%;
10 or more: 4%.

A penalty is not charged if there is only one late payment in a tax year as long as that payment is made within six months.

A penalty of 5% may be charged for any payment that is over six months late and another 5% for a payment that is over 12 months late.

HMRC charges daily interest on late payments by taking the number of days by which a payment is late and applying the relevant late payment interest rate. HMRC makes the charge after the end of the tax year once all the end-of-year returns have been received. Effective since April 5, 2022, the late-payment interest rate is 3.25%.

Social Taxes

Coverage: The employer is primarily responsible for the deduction of National Insurance contributions (NICs) from salary or wages through the PAYE (Pay As You Earn) system and for the payment of these sums to Her Majesty’s Revenue & Customs (HMRC). NICs help to fund many benefits and services including the National Health Service, state-provided pensions, statutory leave benefits and workers’ compensation.

Generally, all employees who are under state pension age but older than age 16 and earn more than certain thresholds pay NICs. Employees may also make voluntary contributions to fill gaps in their record. The state pension age is 66 for men and women as of Oct. 6, 2020, but the state pension age is to increase to 67 for men and women through March 2028, with the specific effective date of the increased state pension age varying among individuals based on their date of birth in accordance with the U.K.’s State Pension Age Timetables. Further increases to the state pension age are to occur with varying implementation dates based on individuals’ date of birth, with implementations of the increased state pension age of 67 occurring from 2026 to 2028 and implementations of the increased state pension age of 68 occurring from 2044 to 2046.

There are six classes of NICs:

Class 1: partly deducted from wages and partly paid by employers;
Class 1A and 1B: paid by employers on the value of some employee expenses and benefits;
Class 3: voluntary contributions by employees to fill gaps in their National Insurance record; and
Classes 2 and 4: paid by self-employed people.

Class 1 affects the largest number of employees.

Rates and Thresholds: Numerous thresholds and rates regarding National Insurance contributions are applicable for employees and employers.

National insurance contributions (NICs) are not made by employees on earnings up to the primary threshold (PT), but employees must pay NICs based on earnings above the primary threshold. There is an upper earnings limit (UEL) above which employees generally are assessed a lower NIC rate than the rate otherwise applicable for their earnings above the primary threshold. Employees who are paid at least the lower earnings limit (LEL) but less than the primary threshold do not pay NICs but are eligible for National Insurance benefits.

Employers are not assessed a NIC rate on wages paid to employees up to the secondary threshold, but employers generally must pay NICs based on earnings above the secondary threshold (ST). However, employers are not required to pay NICs based on wages paid to employees under 21 years of age or certain apprentice employees under 25 years of age unless those wages are above an upper secondary threshold (UST) of earnings.

Effective from April 6 to July 5, 2022, with regard to weekly threshold amounts, the primary threshold is £190, the secondary threshold is £175, the lower earnings limit is £123, the upper earnings limit is £967, and the upper secondary threshold is £967. Effective from July 6, 2022, to April 5, 2023, with regard to weekly threshold amounts, the primary threshold is £242, the secondary threshold is £175, the lower earnings limit is £123, the upper earnings limit is £967, and the upper secondary threshold is £967.

Effective from April 6, 2021, to April 5, 2022, with regard to weekly threshold amounts, the primary threshold was £184, the secondary threshold was £170, the lower earnings limit was £120, the upper earnings limit was £967, and the upper secondary threshold was £967. Effective from April 6, 2020, to April 5, 2021, with regard to weekly threshold amounts, the primary threshold was £183, the secondary threshold was £169, the lower earnings limit was £120, the upper earnings limit was £962, and the upper secondary threshold was £962.

Rates for contributions for Class 1 National Insurance depend on the employee’s earnings and National Insurance category, which is designated by a letter. Category A is the most common National Insurance category, which covers men and women over age 16 but under state pension age who have not opted out of the State Second Pension. Employees who have opted out (or “contracted out”) of the Second State Pension generally make a lower rate of Class 1 contributions and are entitled to rebates of contributions already paid. These employees usually have joined a defined benefit retirement plan. However, currently, contracting out is abolished for members of defined contribution plans. The State Second Pension is a supplement to the Basic State Pension. The other National Insurance categories are as follows:

Category B: qualifying married women and qualifying widows who are entitled to pay reduced National Insurance;
Category C: employees who are older than their applicable State Pension age;
Category J: employees who are able to have reduced National Insurance contributions because they are already being assessed National Insurance contributions through work for another job;
Category H: apprentices who are younger than 25 years of age;
Category M: employees younger than 21 years of age; and
Category Z: employees younger than 21 years of age who are able to have reduced National Insurance contributions because they are already being assessed National Insurance contributions through work for another job.

There are two types of Class 1 NICs: primary contributions, which an employer deducts from an employee’s pay, and secondary contributions, which are paid by the employer.

Note: The Health and Social Care Levy Act 2021 increases the Class 1 primary contribution rate to 13.25%, the Class 1 primary contribution rate for wages above the upper earnings limit to 3.25%, and the Class 1 secondary contribution rate to 15.05%, all effective from April 6, 2022, to April 5, 2023. Effective starting April 6, 2023, a new health and social care levy is to continue the effect of the rate increases by imposing a new tax of 1.25% on the wages subject to NICs.

Class 1: Primary deductions from employee pay for Categories A, H, and M: Effective from April 6 to July 5, 2022: up to £190 per week, no deduction; more than £190 and up to £967 per week, 13.25%; more than £967 per week, 3.25%. Effective from July 6, 2022, to April 5, 2023: up to £242 per week, no deduction; more than £242 and up to £967 per week, 13.25%; more than £967 per week, 3.25%. Effective from April 6, 2021, to April 5, 2022: up to £184 per week, no deduction; more than £184 and up to £967 per week, 12%; more than £967 per week, 2%. Effective from April 6, 2020, to April 5, 2021: up to £183 per week, no deduction; more than £183 and up to £962 per week, 12%; more than £962 per week, 2%.

Class 1: Primary deductions from employee pay for Category B: Effective from April 6 to July 5, 2022: up to £190 per week, no deduction; more than £190 and up to £967 per week, 7.1%; more than £967 per week, 3.25%. Effective from July 6, 2022, to April 5, 2023: up to £242 per week, no deduction; more than £242 and up to £967 per week, 7.1%; more than £967 per week, 3.25%. Effective from April 6, 2021, to April 5, 2022: up to £184 per week, no deduction; more than £184 and up to £967 per week, 5.85%; more than £967 per week, 2%. Effective from April 6, 2020, to April 5, 2021: up to £183 per week, no deduction; more than £183 and up to £962 per week, 5.85%; more than £962 per week, 2%.

Class 1: Primary deductions from employee pay for Category C: National Insurance contributions are not assessed on employees in this category.

Class 1: Primary deductions from employee pay for Categories J and Z: Effective from April 6 to July 5, 2022: up to £190 per week, no deduction; more than £190 and up to £967 per week, 3.25%; more than £967 per week, 3.25%. Effective from July 6, 2022, to April 5, 2023: up to £242 per week, no deduction; more than £242 and up to £967 per week, 3.25%; more than £967 per week, 3.25%. Effective from April 6, 2021, to April 5, 2022: up to £184 per week, no deduction; more than £184 and up to £967 per week, 2%; more than £967 per week, 2%. Effective from April 6, 2020, to April 5, 2021: up to £183 per week, no deduction; more than £183 and up to £962 per week, 2%; more than £962 per week, 2%.

Class 1: Secondary contributions made by employer for Categories A, B, C, and J: Effective from April 6, 2022 to April 5, 2023: up to £175 per week, no contribution; more than £175 per week, 15.05%. Effective from April 6, 2021 to April 5, 2022: up to £170 per week, no contribution; more than £170 per week, 13.8%. Effective from April 6, 2020 to April 5, 2021: up to £169 per week, no contribution; more than £169 per week, 13.8%.

Class 1: Secondary contributions made by employer for Categories H, M, and Z: Effective from April 6, 2022, to April 5, 2023: up to £967 per week, no contribution; more than £967 per week, 15.05%. Effective from April 6, 2021, to April 5, 2022: up to £967 per week, no contribution; more than £967 per week, 13.8%. Effective from April 6, 2020, to April 5, 2021: up to £962 per week, no contribution; more than £962 per week, 13.8%.

Class 1A: NICs are paid directly by an employer on an employee’s expenses or benefits, such as company cars. There are complex rules determining what is considered a taxable benefit.

Effective from April 6, 2022, to April 5, 2023, the contribution rate for Class 1A is 15.05% of the cash equivalent of the benefit. Effective until April 5, 2022, the contribution rate for Class 1A was 13.8% of the cash equivalent of the benefit.

Class 1B: NICs are paid directly by the employer on the combined value of some small or irregular benefits in a single annual payment called a PAYE Settlement Agreement (PSA). PSAs are approved by HMRC and vary in their terms.

Effective from April 6, 2022, to April 5, 2023, the contribution rate for Class 1B is 15.05%. Effective until April 5, 2022, the contribution rate for Class 1B was 13.8%.

Class 3: NICs are voluntary contributions made by employees to fill gaps in their National Insurance record.

Pension plan contribution requirements are covered in the Bonuses and Special Benefits section of this primer.

Registration: To calculate and make NICs, an employer must have a National Insurance number and a letter category from every employee. There are many different letter categories, but Category A is the most common one which covers men and women over age 16 but under state pension age who have not opted out of the State Second Pension.

Taxable Amounts: Cash earnings including salary, wages, fees and bonuses are subject to Class 1 NICs. Earnings that take the form of benefits in kind, such as company cars, use of services or goods, are mostly subject to Class 1A NICs, which are payable by employers and some third parties.

Employment allowance: An employer deduction, known as the employer allowance, may be claimed to reduce employers’ Class 1 NICs, but not Class 1A or 1B contributions. The allowance is calculated for each payroll until the end of the tax year or the allowance’s maximum amount is reached, but may only be claimed by employers that paid less than £100,000 in Class 1 employer NICs in the tax year before the year in which the allowance is claimed. Effective starting April 6, 2023, the value of the allowance is £5,000 per tax year. Effective from April 6, 2020, to April 5, 2022, the value of the allowance was £4,000 per tax year.

Withholding Methods: Class 1 NICs are deducted or contributed from each pay by the employer and reported to HMRC through the PAYE or RTI systems.

An employer calculates Class 1A and Class 1B contributions separately at the end of the year.

Class 3 contributions are made by an employee directly, not through an employer.

Returns and Remittances: The United Kingdom has instituted a new system, PAYE in real time or Real Time Information (RTI). Under this system, an employer sends information to HMRC online about deductions, including Class 1 NICs, and payments each time an employee is paid in a return called a Full Payment Submission (FPS). Employers must electronically submit the information in real time using the PAYE Online service provided by HMRC.

An employer must provide each employee and pension recipient with a year-end summary of total pay, taxes, NICs and deductions (Form P60) in either electronic or paper form by May 31. This requirement remains the same under RTI.

Class 1 NICs are remitted at the same time as income taxes.

Payments made electronically to HMRC of Class 1 NICs and income taxes are due the 22nd of the month following the end of the tax month or quarter to which they relate. If the 22nd falls on a weekend or a bank holiday, the payment must reach HMRC on the previous bank working day. Payments by check through the mail must be posted early enough to reach HMRC no later than the 19th of the month following the end of the tax month or quarter to which they relate. Employers with at least 250 employees must make monthly remittances electronically.

Class 1A contributions on expenses and benefits are calculated separately at the end of the year. A cleared payment made electronically must be in HMRC’s account by July 22 or by July 19 if payment is made by check.

Class 1B payments made electronically must be in HMRC’s account by Oct. 22 or by Oct. 19 if paid by check.

Arrangements for the remittance of Class 3 voluntary contributions are made by the employee, not the employer.

Recordkeeping: Records must be kept for the current and previous three tax years in an electronic or paper format for all employees.

Penalties: Penalties that apply to income taxes also apply to NICs.

Under the current scheme, there is no penalty for the first month of failure to pay. Subsequent penalties for employers who fail to make a return on or before the filing date are:

one to nine employees: £100;
10 to 49 employees: £200;
50 to 249 employees: £300; and
at least 250 employees: £400.

one to three defaults: 1% of the total amount that is late in the tax year (ignoring the first late payment in that tax year);
four to six: 2%;
seven to nine: 3%;
10 or more: 4%.

A penalty is not charged if there is only one late payment in a tax year as long as that payment is made within six months.

A penalty of 5% may be charged for any payment that is over six months late and another 5% for a payment that is over 12 months late.

Effective since April 5, 2022, the late-payment interest rate is 3.25%.

Other Taxes

The Apprenticeship Levy, which has been in effect since April 6, 2017, requires all employers operating in the U.K. with payrolls over £3 million each year to pay a 0.5% payroll tax to fund a new government apprenticeship program. The tax will apply to all covered employers on the total amount of employee earnings subject to Class 1 secondary National Insurance contributions, including amounts that are below the threshold from which employers are required to make National Insurance contributions. Only employer-provided benefits in kind and wages paid to apprentices younger than 25 years old and employees under 21 years old will be excluded from the calculations.

Employers must pay the Apprenticeship Levy each month through the PAYE process in the same way Income Tax or National Insurance contributions are paid. Levy-paying employers in England can register their account on the digital apprenticeship service to access funds and manage and pay for apprenticeships in one place. HMRC will calculate how much each employer will have to pay by using data that it already holds about the home address of their employees.

There is a monthly levy allowance of £1,250. To calculate the apprenticeship levy payment due for a month, the cumulative payroll so far for the tax year as of the end of that month is multiplied by the apprenticeship levy rate of 0.5%, then that result is lowered by the monthly levy allowance multiplied by the number of months that so far concluded that tax year as of the end of that month. That result then is lowered by the total amount of the apprenticeship levy paid for that tax year before that month, and if the resultant amount is positive, that is the amount of the apprenticeship levy due for the month.

Employers must keep records of any information used to calculate levy payments for at least three years after the tax year which they relate.

State/Jurisdiction Taxes

Scotland: The Scottish Parliament has authority to set personal income tax rates for Scottish taxpayers, also known as Scottish rates of income tax (SRIT), with the exception of rates applicable to dividends and savings interest.

The definition of a Scottish taxpayer usually can be resolved by determining the location of the individual’s primary place of residence, also known as an individual’s main home. If an individual’s main home is in Scotland during a tax year, the individual is a Scottish taxpayer for the tax year. An individual’s main home generally is the primary dwelling where the individual lives and spends time. However, if an individual during a tax year lives in or spends time at a dwelling outside Scotland more than a dwelling in Scotland, a dwelling in Scotland still can be the individual’s main home for the tax year if that dwelling is where the individual’s family lives or where most of the individual’s possessions are located; or the dwelling was used in connection with the individual’s registration for a bank account, the General Practitioner Register (GP Register), car insurance, or a similar entity or program associated with individual registration; or the individual participates in the general area of the dwelling as a member of a club or society.

Scottish national identity, the location of work in Scotland, the receiving of wages by a Scottish employer, or travel to Scotland is irrelevant if an individual lives outside of Scotland. In the case that an individual has no “close connection” to Scotland or more than one place of residence, the number of days spent in Scotland can be counted as part of determining an individual’s residency status.

Income tax rates for Scottish taxpayers function as replacement rates from those generally in effect for the United Kingdom, and consequentially, Scottish taxpayers are subject to the Scottish personal income tax brackets, but not the personal income tax brackets generally in effect for the United Kingdom. Effective since April 6, 2017, no portions of the broader U.K. income tax rates for the basic, higher, and additional brackets are in effect for Scottish taxpayers, whereas effective from April 6, 2016, to April 5, 2017, an income tax rate of 10% for Scottish taxpayers was in effect and offset the U.K. income tax rates. Personal income tax rates for Scottish taxpayers range from 19% to 46%.

Provisions of Scottish taxation regarding personal allowance applicability, including the amount of the standard personal allowance in effect for a tax year, are equivalent to those generally in effect for the United Kingdom.

Scotland’s personal income tax rates and minimum and maximum amounts of annual income for a Scottish taxpayer with the standard personal allowance in each tax bracket, in effect for the tax year from April 6, 2022, to April 5, 2023, are as follows:

Range of Annual Taxable Income (British Pounds Sterling)	Range of Annual Total Income Including Standard Personal Allowance (British Pounds Sterling)	Income Tax Rate	Name of Tax Bracket
Up to £2,162	More than £12,570 and up to £14,732	19%	Starter Rate
More than £2,162 and up to £13,118	More than £14,732 and up to £25,688	20%	Basic Rate
More than £13,118 and up to £31,092	More than £25,688 and up to £43,662	21%	Intermediate Rate
More than £31,092 and up to £150,000	More than £43,662 and up to £150,000	41%	Higher Rate
More than £150,000	More than £150,000	46%	Additional Rate

Range of Annual Taxable Income (British Pounds Sterling)	Range of Annual Total Income Including Standard Personal Allowance (British Pounds Sterling)	Income Tax Rate	Name of Tax Bracket
Up to £2,097	More than £12,570 and up to £14,667	19%	Starter Rate
More than £2,097 and up to £12,726	More than £14,667 and up to £25,296	20%	Basic Rate
More than £12,726 and up to £31,092	More than £25,296 and up to £43,662	21%	Intermediate Rate
More than £31,092 and up to £150,000	More than £43,662 and up to £150,000	41%	Higher Rate
More than £150,000	More than £150,000	46%	Additional Rate

Scottish income tax is administered through Her Majesty’s Revenue and Customs (HMRC), which is responsible for collecting the tax. Any U.K. employer that employs a Scottish taxpayer must perform required deductions from wages through PAYE (Pay As You Earn) in real time.

Wales: The National Assembly for Wales has authority, starting with rates that took effect April 6, 2019, to set personal income tax rates for Welsh taxpayers, also known as Welsh rates of income tax (WRIT), with the exception of rates applicable to dividends and savings interest.

The definition of a Welsh taxpayer usually can be resolved by determining the location of the individual’s primary place of residence, also known as an individual’s main home. If an individual’s main home is in Wales during a tax year, the individual is a Welsh taxpayer for the tax year. An individual’s main home generally is the primary dwelling where the individual lives and spends time. However, if an individual during a tax year lives in or spends time at a dwelling outside Wales more than a dwelling in Wales, a dwelling in Wales still can be the individual’s main home for the tax year if that dwelling is where the individual’s family lives or where most of the individual’s possessions are located; or the dwelling was used in connection with the individual’s registration for a bank account, the General Practitioner Register (GP Register), car insurance, or a similar entity or program associated with individual registration; or the individual participates in the general area of the dwelling as a member of a club or society.

Effective since April 6, 2019, Welsh taxpayers are subject to national personal income tax rates that are 10 percentage points lower than the rates that generally are in effect for the national basic, higher, and additional income tax rate brackets. The Welsh rates of income tax are assessed on Welsh taxpayers in addition to the reduced national income tax rates, and the first set of tax rates specifically for Welsh resident taxpayers took effect April 6, 2019.

Provisions of Welsh taxation regarding personal allowance applicability, including the amount of the standard personal allowance in effect for a tax year, are equivalent to those generally in effect for the United Kingdom.

The government of Wales established a singular Welsh rate of income tax of 10% in effect since April 6, 2019, to offset the national rates reduction of 10 percentage points for Welsh taxpayers. The net result of adding the 10% Welsh rate of income tax to the reduced national basic, higher, and additional rates of income tax in effect for Welsh taxpayers, combined with the government of Wales adopting the national income ranges for each national bracket, is that effective from April 6, 2022, to April 5, 2023, and from April 6, 2021, to April 5, 2022, the personal income tax brackets for Welsh resident taxpayers based on applicable total tax rates are the same as the national brackets in effect for taxpayers who are residents of England and taxpayers who are residents of Northern Ireland.

Welsh income tax is administered through Her Majesty’s Revenue and Customs (HMRC), which is responsible for collecting the tax. Any U.K. employer that employs a Welsh taxpayer must perform required deductions from wages through PAYE (Pay As You Earn) in real time.

COMPENSATION AND BENEFITS

Minimum levels of benefits are set by law; employment contracts may provide for higher levels of benefits. The Employment Rights Act of 1996 and the Working Time Regulations of 1998, as amended; govern minimum wage, overtime, hours of work, holidays, leave, wage payment, termination pay and workers’ compensation regulations. In addition, employers are required to enroll employees that work in the United Kingdom into a retirement plan.

Gig economy: A decision of the U.K.’s Supreme Court Feb. 19, 2021, found that Uber drivers were employees covered by the National Minimum Wage Act 1998 and the Working Time Regulations 1998. Under the decision, any time in which drivers are logged into the Uber app within the area for which they are licensed to accept passengers and are ready and willing to accept passengers is considered unmeasured working time under the National Minimum Wage Regulations 2015.

Coronavirus (Covid-19) Guidance:

Until Sept. 30, 2021, employers could claim 80% of employees’ wages corresponding to time for which they are furloughed, up to a maximum of £2,500 per month, through the U.K.’s wage-replacement program, the Coronavirus Job Retention Scheme. Starting July 1, 2020, employers could allow previously furloughed employees to work and could then claim the subsidy for time for which employees were still furloughed, and until July 31, 2020, the scheme also covered employer pension and National Insurance contributions. Claims could be generally be made for periods of at least seven days, but periods must start and end in the same month and periods that span more than one month must be divided into separate claims for each month.

Effective for September 2020, the subsidy decreased to 70% of wages, with a maximum of £2,187.50 per month, and effective for October 2020, the subsidy decreased to 60% of wages, with a maximum of £1,875 per month. For both months of the reduced subsidy, the employer also was to pay employees for whom the employer was receiving the subsidy additional amounts so that each employee received the initial subsidy of 80% of wages and a maximum of £2,500 per month.

The program’s extension starting in November 2020 restored the initial subsidy until June 30, 2021, with the subsidy again 70% of wages, with a maximum of £2,187.50 per month, in July 2021, and 60% of wages, with a maximum of £1,875 per month, in August and September 2021. Employers were to again pay additional amounts in the months of the reduced subsidies so that employees receive the initial subsidy of 80% of wages and a maximum of £2,500 per month.

Claims for periods ending April 30, 2021, or earlier, could be made for employees who were employed on Oct. 30, 2020, as long as at least one payment to the employee was reported through Real Time Information in the period from March 20 to Oct. 30, 2020. Claims for periods starting May 1, 2021, or later, could be made for employees who were employed on March 2, 2021, as long as at least one payment to the employee was reported through RTI in the period from March 20, 2020, to April 30, 2021. Claims involving a month were to be submitted by the 14th of the following month.

Employees whose pay varies were to have average wages calculated over varying periods depending on the date on which they were first furloughed. For periods starting May 1, 2021, or later, the calculation of average wages was not to include either days or wages related to family-related statutory leave, or days of reduced-rate paid leave taken after a period of family-related statutory leave, unless the employee was on leave for the entire period used to calculate their average wages. Family-related statutory leave types include maternity, paternity, paid and unpaid parental, adoption, and parental bereavement.

Sick pay reimbursements: Employers with fewer than 250 employees as of Nov. 30, 2021, could apply through PAYE Online for reimbursement of up to two weeks of Statutory Sick Pay per employee paid to employees who miss work because of coronavirus-related reasons. Employers had until March 24, 2022 to apply for reimbursement and could only file a claim for an employee that was off work on or before Dec. 21, 2021. Employees were to miss work for one of four reasons: they have symptoms of Covid-19; are self-isolating because they live with someone that has symptoms, or because they were notified by the government that they came into contact with someone who has Covid-19; or they have a note from the National Health Service or a doctor advising them to stay at home.

Employer reimbursements for employees’ coronavirus-related home office equipment expenses are exempt from income tax and Class 1 National Insurance contributions. While the regulations introducing the exemption are effective for reimbursements made from June 11, 2020, to April 5, 2022, Her Majesty’s Revenue and Customs also applies the exemption to reimbursements made from March 16 to June 11, 2020.

Employer-provided or employer-reimbursed Covid-19 tests provided from Dec. 8, 2020, to April 5, 2023, are exempt from income tax, and those made available from Jan. 25, 2021 to April 5, 2023, are exempt from Class 1 National Insurance contributions. Her Majesty’s Revenue and Customs also applies the exemptions to tests provided since April 6, 2020.

Minimum Wage

Under the authority of the National Minimum Wage Act 1998, the national hourly minimum-wage rates generally are annually adjusted. There are four rates based only on age and another rate for apprentices. Effective starting April 1, 2021, the standard hourly minimum wage, called the National Living Wage, applies to workers who are at least age 23, and the other minimum-wage rates are known as the National Minimum Wage. Effective until March 31, 2021, the standard hourly minimum wage applied to workers who were at least age 25.

Effective from April 1, 2022, to March 31, 2023, hourly minimum wage rates are:

£9.50 for those at least age 23;
£9.18 for those ages 21 to 22;
£6.83 for those ages 18 to 20; and
£4.81 for those ages 16 to 17 and for apprentices.

Effective from April 1, 2021, to March 31, 2022, the hourly minimum wage rates were:

£8.91 for those at least age 23;
£8.36 for those ages 21 to 22;
£6.56 for those ages 18 to 20;
£4.62 for those under age 18; and
£4.30 for apprentices under age 19, or apprentices of any age in their first year of apprenticeship.

Apprentices who are at least 19 years of age and who have completed at least one year of their apprenticeship are entitled to be paid in accordance with the National Minimum Wage rate applicable to their age.

Employment contracts for payments below the minimum wage are not legally binding. Part-time workers, temporary workers hired by the day, and foreign workers are also entitled to the minimum wage. Agricultural workers must be paid at least the Agricultural Minimum Wage, or the applicable National Minimum Wage rate if that is higher. The Agricultural Minimum Wage depends on the worker’s job grade and whether the worker is part-time, a trainee, or an apprentice.

Workers who are not entitled to the National Minimum Wage include workers under 16 and people living and working within a family such as nannies and au pairs if they live in the family home where they work, share meals with the family and do not have to pay for room or board.

Overtime

Overtime means any time worked beyond the normal working hours given in an employment contract, which will usually include pay rates for overtime. However, employers are not required to pay employees for overtime; the only requirement is that an employee’s average pay for total hours worked cannot fall below the applicable National Minimum Wage rate.

An employer may give an employee compensatory time off instead of wages for overtime, which is known as “time off in lieu.”

Hours of Work

The workweek is 48 hours on average, which is calculated over a reference period usually of 17 weeks.

Employees who are 18 or over may opt out of the 48-hour limit, and choose to work more than 48 hours per week on average, for a limited period or indefinitely. The opt-out must be voluntary and in writing and can be canceled by the employee at any time with notice.

Employees who are 16 or 17 years of age may work eight hours a day or 40 hours per week. Their hours are not averaged out and they cannot opt out to work longer hours.

Certain employees cannot opt out, including delivery drivers, workers on ships or boats, airline staff, and other staff who travel in and operate vehicles covered by European Union rules on drivers’ hours, such as bus conductors and security guards on a vehicle carrying high-value goods. Others, such as emergency services workers and police, may be compelled to work more than 48 hours a week on average.

Normal working hours should be set out in the employment contract or written statement of employment details. Work hours include job-related training but not rest or lunch breaks or commuting time.

Employers must provide employees with a rest break of 20 minutes for every six hours of continuous work, an 11 hour rest period every 24 hour period and a 24 hour continuous rest period per week.

The period of night work is generally from 11 p.m. to 6 a.m. Workers who regularly work at least 3 hours during the period of night work are considered night workers, and cannot work more than eight hours of a 24-hour period on average, calculated over a reference period usually of 17 weeks.

Employees who are 16 or 17 years of age cannot work from midnight to 4 a.m. They generally also cannot work from 10 p.m. to midnight and from 4 a.m. to 6 a.m., with exceptions for certain industries, including advertising, agriculture, catering, hotels, hospitals, mail or newspaper delivery, and retail.

Holidays

England and Wales recognize eight public holidays, also known as bank holidays, while Scotland recognizes nine and Northern Ireland recognizes 10. Employers are not required to provide employees with paid leave for public holidays, although it is customary for employers to provide employees with paid leave for some or all of these holidays.

If a public holiday falls on a weekend, a substitute weekday becomes the holiday, usually the immediately following Monday. Employers can choose to include these holidays as part of a worker’s statutory annual leave.

The seven holidays that are collectively recognized by England, Wales, Scotland, and Northern Ireland are as follows:

Jan. 1: New Year’s Day.
Good Friday, the Friday immediately before Easter Sunday.
Early May Bank Holiday, which generally is the first Monday in May.
Spring Bank Holiday, also known as the Late May Bank Holiday, the last Monday in May.
Summer Bank Holiday, which for Scotland is recognized as the first Monday in August and for England, Wales, and Northern Ireland is recognized as the last Monday in August.
Dec. 25: Christmas Day.
Dec. 26: Boxing Day.

England and Wales

The additional public holiday recognized by England and Wales is Easter Monday, the Monday immediately after Easter Sunday.

Scotland

The additional public holidays recognized by Scotland are:

Jan. 2: The second day of the new Gregorian Calendar year.
Nov. 30: St. Andrew’s Day.

Local councils may set their own lists of public holidays that in general partially overlap with the Scotland-wide list, but contain differences.

Northern Ireland

The additional public holidays recognized by Northern Ireland are:

March 17: St. Patrick’s Day.
Easter Monday, the Monday immediately after Easter Sunday.
July 12: Battle of the Boyne (Orangemen’s Day).

Leave

Employees who earn at least the lower earnings limit (LEL) are eligible for various forms of statutory leave pay.

Effective from April 6, 2022, to April 5, 2023, the lower earnings limit is £123 per week, or £533 per month, or £6,396 per year. Effective from April 6, 2021, to April 5, 2022, unchanged from April 6, 2020, to April 5, 2021, the lower earnings limit was £120 per week, or £520 per month, or £6,240 per year.

Almost all employees are entitled to 28 days of paid leave per year.

Full-time employees who work at least five days each week on average in a year are entitled to 28 days of paid annual leave per year. Part-time workers also are entitled to annual paid leave days, although the minimum total number of annual paid leave days for which they are entitled may be less than 28 days and is determined by the average number of days they work each week during a year. As 28 days of annual paid leave is the standard minimum number of days for those who worked at least five days on average each week during a year, dividing 28 by 5 results in a rate of 5.6 days of annual paid leave for every one day worked on average each week in a year. For example, if a worker works three days a week on average in a year, leave is calculated by multiplying 3 by 5.6, which would be 16.8 days of annual paid leave.

Public holidays, also commonly called bank holidays, do not have to be given as paid leave. An employment contract may include these holidays as part of an employee’s statutory annual leave.

An employee is entitled to a week’s regular pay for each week of leave. For a shift worker with fixed hours, a week’s annual leave pay equals the average number of weekly fixed hours worked in the previous 12 weeks at the average hourly rate. For workers with no fixed hours, a week’s annual leave pay is the average pay a worker got over the previous 12 weeks in which they were paid.

Annual leave accrues during maternity, paternity, adoption and sick leave. For a new employee, annual leave accrues during the first year at the rate of one-twelfth ( ¹ ⁄ ₁₂ ) per month.

Leave does not automatically carry over from year to year, although an employment contract may provide that it does.

Members of the armed forces, the police and the civil protection services are not covered by statutory leave entitlement, although an employment contract may have other provisions governing leave.

Sick leave/Statutory Sick Pay (SSP): Effective from April 6, 2022, to April 5, 2023, employees generally are entitled to statutory sick pay of £99.35 per full week of seven days, for up to 28 weeks. Effective from April 6, 2021, to April 5, 2022, employees generally were entitled to statutory sick pay of £96.35 per full week of seven days, for up to 28 weeks.

An employment contract may provide for a higher amount of paid sick leave, which is known as contractual sick pay. Statutory annual leave continues to accrue while the employee is off work sick and can be taken during sick leave.

SSP is paid when the employee is sick for four days in a row including non-working days, starting on the fourth day. The government plans to extend SSP payments to the first day of illness for employees with the coronavirus or those who are self-quarantined.

Taxes and National Insurance contributions (NICs) are deducted from statutory sick pay.

Effective from April 6, 2022, to April 5, 2023, to qualify for statutory sick pay, an employee needs to earn at least the lower earnings limit of £123 per week in gross pay and give proper notice. Effective from April 6, 2021, to April 5, 2022, unchanged from April 6, 2020, to April 5, 2021, to qualify for statutory sick pay, an employee needed to earn at least the lower earnings limit of £120 per week in gross pay and give proper notice.

Employees are not eligible for SSP if they are receiving maternity, paternity, or adoption pay; maternity allowance; or have already received the maximum 28 weeks of SSP, among other exceptions. The government plans to extend eligibility for SSP to employees who cannot work because they have self-quarantined because of the coronavirus and to those caring for members of their household

Maternity leave: Any female employee who works under an employment contract can take up to 52 weeks of maternity leave: the first 26 weeks is known as Ordinary Maternity Leave, the last 26 weeks as Additional Maternity Leave.

The earliest leave can be taken is 11 weeks before the expected week of childbirth. Leave starts the day after the birth if the baby is born early. An employee must take at least two weeks after the birth, or four weeks for a factory worker. Any employee who gives the required notice is entitled to the full 52 weeks, even a new employee.

Statutory Maternity Pay (SMP) can be paid for up to 39 weeks.

For the first six weeks, statutory maternity pay is payable at 90% of the employee’s average weekly gross pay. For the remaining 33 weeks, statutory maternity pay is payable at a basic weekly amount or 90% of the employee’s average weekly gross pay, whichever is lower.

Effective starting April 3, 2022, the basic weekly amount is £156.66. Effective from April 4, 2021, to April 2, 2022, the basic weekly amount was £151.97.

Taxes and NICs are deducted from statutory maternity pay.

Working mothers who lose a child after 24 weeks of pregnancy or during maternity leave do not lose their entitlement to maternity leave and pay. These employees also are still prohibited from returning to work for at least two weeks after giving birth. If the child is born to a surrogate, the female employee does not qualify for maternity leave but may receive unpaid parental leave.

To qualify for SMP, an employee must have worked for the employer for at least 26 weeks up to the 15th week before the expected week of childbirth and must have given the correct notice and proof of pregnancy.

Effective from April 6, 2022, to April 5, 2023, to qualify for SMP, the employee also must have earned at least the lower earnings limit of £123 of gross pay per week as averaged over eight weeks. Effective from April 6, 2021, to April 5, 2022, unchanged from April 6, 2020, to April 5, 2021, to qualify for SMP, the employee also must have earned at least the lower earnings limit of £120 of gross pay per week as averaged over eight weeks.

An employee who does not qualify for SMP may acquire a maternity allowance (MA) payable for up to 39 weeks at a basic weekly amount or 90% of average weekly gross pay, whichever is lower.

Effective starting April 3, 2022, the basic weekly amount is £156.66. Effective from April 4, 2021, to April 2, 2022, the basic weekly amount was £151.97.

Payments of maternity allowances can start 11 weeks before the baby is due.

To be eligible for maternity allowance, a woman must be employed or self-employed for at least 26 weeks in the 66 weeks before the week the baby is due and must have been earning at least £30 a week over any period of 13 weeks.

Paternity leave: Eligible employees may choose either one or two weeks’ consecutive leave for the birth or adoption of a child. The start date differs for a birth or an adoption.

Statutory Paternity Pay (SPP) is payable at a basic weekly amount or 90% of the employee’s average weekly gross pay, whichever is lower.

Effective starting April 3, 2022, the basic weekly amount is £156.66. Effective from April 4, 2021, to April 2, 2022, the basic weekly amount was £151.97.

Taxes and NICs are deducted from statutory paternity pay.

To qualify for both leave and pay, an employee must have worked for the same employer continuously for at least 26 weeks by the end of the 15th week before the expected week of childbirth or by the end of the week of notice of an adoption match and must have given proper notice.

Effective from April 6, 2022, to April 5, 2023, to qualify for SPP, the employee also must have earned at least the lower earnings limit of £123 of gross pay per week as averaged over eight weeks. Effective from April 6, 2021, to April 5, 2022, unchanged from April 6, 2020, to April 5, 2021, to qualify for SPP, the employee also must have earned at least the lower earnings limit of £120 of gross pay per week as averaged over eight weeks.

The employee must be the biological father of the child, the mother’s husband or partner (including same-sex relationships), the child’s adopter, or the husband or partner (including same-sex relationships) of the child’s adopter.

Adoption: Eligible employees are entitled to 52 weeks of ordinary adoption leave. The first 26 weeks is known as ordinary adoption leave, and the last 26 weeks as additional adoption leave.

Leave can start up to 14 days before the child starts living with the employee for an adoption within the United Kingdom. For an overseas adoption, the leave may begin when the child arrives in the United Kingdom or within 28 days of that date.

Statutory Adoption Pay (SAP) can be paid for up to 39 weeks.

For the first six weeks, statutory adoption pay is payable at 90% of the employee’s average weekly gross pay. For the remaining 33 weeks, statutory maternity pay is payable at a basic weekly amount or 90% of the employee’s average weekly gross pay, whichever is lower.

Effective starting April 3, 2022, the basic weekly amount is £156.66. Effective from April 4, 2021, to April 2, 2022, the basic weekly amount was £151.97.

Taxes and NICs are deducted from statutory adoption pay.

To qualify for both leave and pay, an employee must have worked for the employer continuously for at least 26 weeks by the week they were matched with a child in a U.K. adoption, or by the week they received official notification of an overseas adoption.

Effective from April 6, 2022, to April 5, 2023, to qualify for both adoption leave and SAP, the employee also must have earned at least the lower earnings limit of £123 of gross pay per week as averaged over eight weeks. Effective from April 6, 2021, to April 5, 2022, unchanged from April 6, 2020, to April 5, 2021, to qualify for both adoption leave and SAP, the employee also must have earned at least the lower earnings limit of £120 of gross pay per week as averaged over eight weeks.

Only one parent in a two-parent family can take adoption leave. The other adopting parent, if otherwise eligible, may take paternity leave with Ordinary Statutory Paternity Pay, including same-sex couples.

Shared Parental Leave and Pay: In England, Scotland, and Wales, if an employee chooses to end maternity or adoption leave or pay before the statutory period ends, the remaining leave or pay may be shared between both parents. The employee must return to work, or give notice that they are to return to work, and give notice that they wish to start Shared Parental Leave. To qualify for both leave and pay, an employee must have worked for the same employer continuously for at least 26 weeks by the end of the 15th week before the expected week of childbirth or by the end of the week of notice of an adoption match and must have given proper notice. To share the leave, the employee’s partner must be employed or self-employed for at least 26 weeks in the 66 weeks before the week of the birth or adoption and must have been earning at least £30 a week over any period of 13 weeks.

Effective from April 6, 2022, to April 5, 2023, to qualify for shared parental pay, the employee also must have earned at least the lower earnings limit of £123 of gross pay per week as averaged over eight weeks. Effective from April 6, 2021, to April 5, 2022, unchanged from April 6, 2020, to April 5, 2021, to qualify for shared parental pay, the employee also must have earned at least the lower earnings limit of £120 of gross pay per week as averaged over eight weeks.

Shared parental pay is payable at a basic weekly amount or 90% of the employee’s average weekly gross pay, whichever is lower.

Effective starting April 3, 2022, the basic weekly amount is £156.66. Effective from April 4, 2021, to April 2, 2022, the basic weekly amount was £151.97.

Parental bereavement leave: Effective starting April 6, 2020, employees are eligible for up to two weeks of leave following the loss of a child under the age of 18 or a stillbirth after 24 weeks of pregnancy. Employees with 26 weeks’ continuous service are entitled to paid leave at the statutory rate, and other employees are entitled to unpaid leave. The leave can be taken up to 56 weeks from the date of the death of the child.

Statutory parental bereavement pay is payable at a basic weekly amount or 90% of the employee’s average weekly gross pay, whichever is lower.

Effective starting April 3, 2022, the basic weekly amount is £156.66. Effective from April 4, 2021, to April 2, 2022, the basic weekly amount was £151.97.

Reimbursement of leave payments: Employers generally are able to be reimbursed by HMRC for 92% of payments made to employees for maternity, paternity, adoption, shared parental, and parental bereavement leave. The reimbursement is instead 103% of payments if the combined total of employee and employer Class 1 NICs for the previous tax year was less than £45,000.

Parental leave: A parent may take a total of 18 weeks of unpaid parental leave until the child is 5 years old or until a disabled child is 18. An employment contract may provide for paid leave.

Compassionate leave: There is no entitlement to compassionate leave, although it may be provided by an employment contract. An employee is also entitled to a reasonable time off to deal with an emergency involving a dependant, such as a spouse, partner, child, parent, or friend or family member who relies on the employee for care, which is usually one or two days. This leave may be paid or unpaid, depending on the employment contract.

Other leave: An employee is allowed to take leave for public duties such as jury duty. There is no entitlement to paid leave, although it may be provided by an employment contract.

Wage Payment

Employees are paid weekly, every two weeks, every four weeks, monthly, quarterly, semiannually, annually or irregularly by direct deposit, check or cash.

An employee must be issued a written payslip at or before each time wages are paid. The payslip, which may be electronic or sent by email, must show gross pay, net pay, deductions for taxes, NICs and any fixed deductions such as union dues. An employer must provide each employee and pension recipient with a year-end summary of total pay, taxes, NICs and deductions (Form P60) in either electronic or paper form by May 31.

Bonuses and Special Benefits

The U.K. does not require employers to provide bonus payments to employees, but other benefits are required.

Under the Pensions Act of 2008 and Pensions (No. 2) Act (Northern Ireland) 2008, employers generally are required to enroll all employees who work in the United Kingdom into a pension plan.

All employers are required to automatically enroll their employees into a pension plan.

Employers can use the independently run, government-backed defined contribution plan, National Employment Savings Trust (NEST), or their own plan, which could be either a defined contribution plan or a defined benefit plan. Automatic enrollment is being phased in over six years to cover all employers. NEST can also be used in addition to an employer’s existing retirement plan. Auto-enrollment was enacted to provide retirement plans for employees who were not previously covered, especially those with low to moderate income.

Employees who have been automatically enrolled can opt out within one month of enrollment, or can stop all contributions after the one-month deadline has expired. An employee may withdraw NEST funds starting at age 55 and before age 75.

The Pensions Regulator, an executive nondepartmental public body, sponsored by the Secretary of State for Work and Pensions, regulates work-based pension plans (usually called “schemes” in the United Kingdom) that an employer makes available to employees.

Auto-enrollment/NEST is in addition to existing state pensions:

basic State Pension, which is funded by National Insurance contributions (NICs);
State Second Pension, a supplement to the basic State Pension that also is funded by NICs.

Employees can start claiming state pensions between age 65 and age 66 for both men and women, depending on their exact date of birth. The pension age is age 66 starting Oct. 6, 2020, and is planned to gradually rise to age 67 by March 6, 2028.

Coverage: Auto-enrollment/NEST: Automatic enrollment and minimum contributions are required for employees between age 22 and their state pension age who annually earn more than £10,000.

Basic State Pension and State Second Pension: Effective from April 6 to July 5, 2022, all employees under the state pension age but older than age 16 who earned at least the primary threshold of £190 per week generally are covered by the requirement to have their wages deducted to fund the Basic State Pension. Effective from July 6, 2022, to April 5, 2023, all employees under the state pension age but older than age 16 who earned at least the primary threshold of £242 per week generally are covered by the requirement to have their wages deducted to fund the Basic State Pension. Effective from April 6, 2021, to April 5, 2022, all employees under the state pension age but older than age 16 who earned at least the primary threshold of £184 per week generally were covered by the requirement to have their wages deducted to fund the Basic State Pension.

Employees may also make voluntary contributions to fill gaps in their record. Contributions can be credited to an employee’s record, rather than be actually paid, under certain circumstances such as time spent caring for a disabled relative or using the contribution record of a spouse or civil partner.

The State Second Pension, sometimes called S2P, is a supplement to the Basic State Pension.

Effective from July 6, 2022, to April 5, 2023, employees who are paid at least the lower earnings limit of £123 per week from one employer for a tax year are covered by the benefits of the State Second Pension, but only employees who are paid at least the primary threshold of £242 per week are covered by the requirement to have their wages deducted to fund the State Second Pension. Effective from April 6 to July 5, 2022, employees who are paid at least the lower earnings limit of £123 per week from one employer for a tax year are covered by the benefits of the State Second Pension, but only employees who are paid at least the primary threshold of £190 per week are covered by the requirement to have their wages deducted to fund the State Second Pension. Effective from April 6, 2021, to April 5, 2022, employees who are paid at least the lower earnings limit of £120 per week from one employer for a tax year are covered by the benefits of the State Second Pension, but only employees who are paid at least the primary threshold of £184 per week are covered by the requirement to have their wages deducted to fund the State Second Pension.

Employees may opt out, or contract out, of the State Second Pension and consequentially pay lower National Insurance contributions.

The employees who opt out usually have joined a defined benefit retirement plan. However, contracting out is abolished for members of defined contribution plans, including NEST. (An earlier, similar plan, State Earnings-Related Pension Scheme (SERPS), ran from April 6, 1978, to April 5, 2002.) Employees who contributed to both SERPS and S2P may be able to collect benefits from both.

Rates and Thresholds: Auto-enrollment/NEST: The employee and employer contribution rates to an employee’s pension plan are in effect on the employee’s qualifying earnings. An employer chooses whether it defines qualifying earnings for each of its employees as either:

wages paid to an employee that are above the national lower earnings limit an up to the national upper earnings limit or
an employee’s full pretax salary or wages.

Effective from April 6, 2022, to April 5, 2023, with regard to weekly threshold amounts, the lower earnings limit is £123 and the upper earnings limit is £967, and with regard to annual amounts, the lower earnings limit is £6,396 and the upper earnings limit is £50,270. Effective from April 6, 2021, to April 5, 2022, with regard to weekly threshold amounts, the lower earnings limit was £120 and the upper earnings limit was £967, and with regard to annual amounts, the lower earnings limit was £6,240 and the upper earnings limit was £50,270.

Pension plan contributions start after an employee has three months of service with an employer.

Effective since April 6, 2019, the required contribution rates for an employee pension plan are 3% for employers and 5% for employees, for a total rate of 8%. Effective from April 6, 2018, to April 5, 2019, the required contribution rates for an employee pension plan were 2% for employers and 3% for employees, for a total rate of 5%.

Employees are eligible for tax relief on part of their required contribution to an employee pension plan.

Effective since April 6, 2019, the government offers tax relief of 1 percentage point of the employee contribution rate of 5%, for an effective employee contribution rate of 4%. Effective from April 6, 2018, to April 5, 2019, the government offered tax relief of 0.6 percentage points of the employee contribution rate of 3%, for an effective employee contribution rate of 2.4%.

Basic State Pension and State Second Pension: State pensions primarily are funded through Class 1 NICs.

There are two types of Class 1 NICs: primary contributions, which an employer deducts from an employee’s pay, and secondary contributions, which are paid by the employer. Rates for both types of contributions depend on the employee’s National Insurance category (designated by a letter) and earnings. Category A is the most common National Insurance category which covers men and women over age 16 but under state pension age who have not opted out of the State Second Pension. Employees who have opted out (or “contracted out”) of the Second State Pension generally make a lower rate of Class 1 contributions and are entitled to rebates of contributions already paid.

Contributions can be credited to an employee’s record, rather than be actually paid, under certain circumstances such as time spent caring for a disabled relative or using the contribution record of a spouse or civil partner.

Registration: Auto-enrollment/NEST: An employer must register online or by telephone with the Pensions Regulator within four months of its staging date, which is the date the employer becomes liable under the Pensions Act 2008 to automatically enroll employees in a pension plan. Employers must re-register every three years.

Basic State Pension and State Second Pension: To calculate and make NICs, an employer must have a National Insurance number and a letter category from every employee. There are many different letter categories, but Category A is the most common one which covers men and women over age 16 but under state pension age who have not opted out of the State Second Pension.

Taxable Amounts: Wages include salary, overtime, bonuses and commissions, statutory sick pay and statutory pay during paternity, maternity, or any other kind of family leave.

Withholding Methods: Auto-enrollment/NEST: Withholding is done through the PAYE (Pay As You Earn) system.

Basic State Pension and State Second Pension: Withholding is done through the PAYE (Pay As You Earn) system for NICs.

Returns and Remittances: Auto-enrollment/NEST: An employer makes contributions to NEST according to a contribution schedule that is approved by NEST. Employers or their payroll service provider can use the NEST website to set up and make payments to NEST. Contributions may be made weekly, every two weeks, monthly, or every four weeks online by debit or credit through a bank account. Employee contributions must be paid to NEST no later than the 22nd day of the month following the month in which they were taken out of the employee’s pay.

Basic State Pension and State Second Pension: Class 1 NICs are remitted at the same time as income taxes. Payments may be made quarterly if average monthly payments are likely to be less than £1,500.

Recordkeeping: Employers must keep records about employees’ pension arrangements for six years in an electronic or paper format. Records on opt-outs from NEST must be kept for four years.

Penalties: Auto-enrollment/NEST: The Pensions Regulator will initially issue guidance and instruction by telephone, e-mail, letter and in person or a warning letter confirming a set time frame for compliance with the duties. Enforcement then escalates to several types of statutory notices directing an employer to comply with statutory duties and/or pay any missed or late contributions.

The statutory notices include a Fixed Penalty Notice of £400 if an employer fails to comply with statutory notices or if there is sufficient evidence of a breach; Escalating Penalty Notice if an employer fails to comply with a statutory notice at a daily rate of £50 to £10,000 depending on the number of workers; Prohibited Recruitment Conduct Penalty Notice for cases where an employer fails to comply with a compliance notice or there is sufficient evidence of a breach, set at a maximum fixed daily rate of £5,000 if the employer has 250 workers or more; Civil Penalty for cases where the employer failed to pay contributions due, up to £5,000 for individuals and up to £50,000 for organizations.

The government may recover penalties in court by a civil action or by prosecution of employers who willfully fail to comply with their duties.

Regulation of non-employer plan administrators and trustees is separate.

Basic State Pension and State Second Pension: Penalties that apply to income taxes also apply to NICs. Under the Real Time Information system (RTI), an employer sends information to HMRC online about deductions and payments each time an employee is paid in a return called a Full Payment Submission (FPS).

No penalty will be charged for late filing if the final FPS for an employee is submitted by April 19. After April 19, an employer can submit an Earlier Year Update (EYU) by May 19 with no penalty.

Under the current scheme, there is no penalty for the first month of failure to pay. Subsequent penalties for employers who fail to make a return on or before the filing date will be:

one to nine employees: £100;
10 to 49 employees: £200;
50 to 249 employees: £300; and
at least 250 employees: £400.

one to three defaults: 1% of the total amount that is late in the tax year (ignoring the first late payment in that tax year);
four to six: 2%;
seven to nine: 3%;
10 or more: 4%.

A penalty is not charged if there is only one late payment in a tax year as long as that payment is made within six months.

A penalty of 5% may be charged for any payment that is over six months late and another 5% for a payment that is over 12 months late.

Effective since April 5, 2022, the late-payment interest rate is 3.25%.

Termination Pay

When employees separate from employment, their employer must provide them with a copy of Form P45, Details of Employee Leaving Work. Form P45 details for the recipient employee the amounts and types of tax the employee paid on income from employment during the tax year for which the form was issued. The employer must provide Part 1 of the form to HMRC; an employee must provide Parts 2 and 3 to the employee’s new employer, or to Jobcentre Plus if not working; and the employee retains Part 1A.

In conjunction with Form P45, any remaining amount of income from employment not already paid to the separated employee must be paid to the employee, with PAYE deductions applied to the amount and reported on the next Full Payment Submission (FPS) required to be transmitted to HMRC.

An employee who is terminated as “redundant” is entitled to statutory redundancy pay if the employee has been working for that employer for at least two full years. An employee will get half a week’s pay for each full year he or she was under age 22 and worked for the employer; one week’s pay for each full year he or she was at least age 22 and no older than age 41 and worked for the employer; and one and one-half week’s pay for each full year he or she was at least 42 years of age and worked for the employer. Redundancy pay under £30,000 generally is not taxable. Taxable end-of-employment wages for employees who separated from employment because of redundancy usually are issued on Form P45.

An employee is not entitled to statutory redundancy pay if the termination was due to misconduct or if the employee refuses an alternative job without good reason. Some categories of employees are not entitled to statutory redundancy pay, such as government employees, House of Lords or House of Commons staff and certain apprentices.

The statutory redundancy notice periods are: at least one week’s notice if employed between one month and two years; one week’s notice for each year if employed between two and 12 years; and 12 weeks’ notice if employed for 12 years or more.

It is generally expected that the employer makes the redundancy payment on the employee’s last day, the day after that, the next pay period or in some sort of scheduled agreement with the employee.

An employee who has worked for an employer for more than one month must give at least one week’s notice before resigning, or the length of notice required by the employment contract.

An employee is entitled to their regular rate of pay during the notice period. Employers may provide payments in lieu of notice, which are subject to income tax and National Insurance regardless of whether the employment contract provides for such a payment. An employer may also compensate an employee in exchange for not working some or all of the notice period with a payment known as a post-employment notice payment, which represents the amount of pay the employee would have earned for working the entire notice period. The amount of the payment must be calculated according to a formula that multiplies the regular pay earned in the last pay period before notice is given by the number of days in the notice period not worked; divides by the number of days in the last pay period before notice is given; and then subtracts any other payments received in connection with termination. Effective starting April 6, 2021, all post-employment notice payments are subject to income tax and National Insurance, including for nonresidents if the notice period was to be worked in the U.K. Effective until April 5, 2021, the payments were only subject to income tax and National Insurance if the recipient was a U.K. resident for the tax year containing the termination.

An employer can also require an employee to not come to the workplace during the notice period, which is commonly known as gardening leave.

Workers’ Compensation

Employers in England, Scotland and Wales are required by the Employers’ Liability (Compulsory Insurance) Act 1969 to maintain insurance for the compensation of any injury, illness, or death suffered by employees in the course of their duties. Family businesses are exempt from the act. An employer must have minimum coverage of £5 million. Employers in Northern Ireland have similar duties under a separate statute.

Recordkeeping

Employers must keep records of the following for the current and previous three tax years in either an electronic or paper format for each employee:

the employee’s name and address;
payslips or some other record showing gross earnings, taxes, NICs, any student loan repayments and net pay;
pension payments;
Statutory Sick Pay, Statutory Maternity Pay, Statutory Adoption Pay, Statutory Paternity Pay, and Shared Parental Leave and Pay;
leave and sickness absences, overtime, commissions and bonuses.

Such detailed records are not required for an employee whose wages are below the Lower Earnings Limit (LEL). However, records of the employee’s name and address and the payments made each pay period are still required.

Employers must keep records of night workers’ hours worked for at least two years.

FOREIGN WORKERS

Foreign workers are covered by labor laws, are entitled to minimum wage, must pay income tax and generally have National Insurance contributions (NICs) deducted from their pay by their employers. Workers from the United States can be covered by a totalization agreement to avoid paying National insurance contributions and continue paying into the U.S. Social Security system.

Visa Requirements: Irish nationals do not require visas, while starting Jan. 1, 2021, nationals of other countries require visas and generally are admitted to work under a point-based system.

Irish nationals: Irish nationals have an automatic right to work in the United Kingdom and do not require visas or work permits to do so.

European Union, European Economic Area, and Swiss nationals: Nationals of these countries who moved to the U.K. generally by Dec. 31, 2020, were to apply to the EU Settlement Scheme by June 30, 2021, to continue to live and work in the U.K. without a visa after that date. Irish nationals and those who have the indefinite right to enter or remain in the U.K. do not have to apply. Starting Jan. 1, 2021, nationals of these countries who are not covered by the EU Settlement Scheme are subject to the same requirements as nationals of other countries.

The EEA consists of Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, the Republic of Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and non-European Union members Iceland, Liechtenstein, and Norway.

Nationals of other countries: There are several categories, or tiers, for workers from other countries that have separate requirements for visas under a points-based system. Points are awarded according to criteria that vary according to the tier, but generally include sponsorship by a U.K. employer, sufficient English language ability and sufficient savings or funds from an employer to maintain yourself.

High-value migrants (Tier 1) are divided into the following types: Global Talent (people who are recognized or have the potential to be recognized as leaders in science and the arts and the digital-technology sector); Entrepreneur (people who want to set up or take over, and be actively involved in running, a business); and Investor (for people who want make a substantial financial investment in the United Kingdom). Tier 1 visa applications must be endorsed by a designated competent body and do not require a sponsor.

Skilled workers (Tier 2) must have a job offer and be sponsored by the employer who applies for a license from the Home Office. Tier 2 also includes intra-company transfers, elite athletes and coaches who intend to be based in the United Kingdom, and ministers.

Temporary workers (Tier 5) must have a job offer from a licensed sponsor. This tier includes migrants who want to come to the United Kingdom to work in sports or as entertainers or creative artists for up to 12 months, which can be extended under certain circumstances to a maximum of 24 months. Tier 5 also includes religious workers and others, such as voluntary, unpaid charity workers.

Tier 3, which is suspended, was for temporary low-skilled workers to fill specific labor shortages, and Tier 4 is for students.

In addition, there are other limited categories with special rules, such as representatives of a non-U.K. company; employees of a non-U.K. newspaper or broadcasting company on long-term assignments; and domestic workers who accompany their non-U.K. employer to work in the employer’s private household.

Employees may need to pay a charge for healthcare services, called the “ immigration health surcharge (IHS),” if they spend more than six months in the U.K at the rate of either £470 or £624, depending on the type of visa, per year as part of the visa process. Payment of the surcharge by employers forms a taxable benefit in kind.

Taxes: Foreign workers are subject to U.K. taxes on U.K. wages.

Tax residency rules are listed above in the income tax section.

Currently, a person who lives in the United Kingdom but is either domiciled abroad or not ordinarily resident in the United Kingdom pays taxes on foreign-sourced income and gains either on an “arising basis” or a “remittance basis.” The U.K. government ended the permanent non-domicile tax status effective April 6, 2017, and as part of this change, individuals who had been residents in the U.K. for more than 15 of the past 20 tax years would be deemed U.K.-domiciled for tax purposes.

An individual who is not a resident in the U.K. but received income in the U.K. can fill in form R43 to claim personal allowances and tax repayment.

If an employee works both inside and outside the UK in a tax year but is not resident in the U.K., then the employer can apply under Section 690 ITEPA 2003 for a direction from HMRC to operate PAYE only on the percentage of the employee’s total earnings that are for work in the U.K. If an employer does not make an application under Section 690 ITEPA 2003 then, unless the employee is in a tax equalization arrangement under EP Appendix 6, the employer must operate PAYE on all payments made to the employee for work done both in and outside the U.K.

Equity Pay: For internationally mobile employees, when an employee leaves a company, shares either must come out of an employee share plan or an employee may have to sell the shares. Additionally, when an employee leaves the U.K. but works for the same company or a member company, an employee can remain within the same share plan but will not receive tax advantages unless he or she is still subject to U.K. taxation. Employees who leave the U.K. must be absent for a full tax year and not perform any duties attracting U.K. income tax liability to avoid paying U.K. taxes.

Employees who were granted share options when they were non-U.K. residents and then moved to the U.K. to work, are now subject to U.K. tax if they exercise those options.

Wages/Payments: There are no special wage requirements for foreign workers.

Termination: Foreign workers are subject to the same laws on termination rights and pay as U.K. citizens. Sponsors must notify the U.K. Border Agency if a foreign worker has been terminated. Foreign workers who enter under the points-based system must notify the U.K. Border Agency of a “change of circumstances.”

WORKING IN THE UNITED STATES

Foreign workers from the U.K. must meet general visa requirements and be certified to be employed in the U.S. General visa requirements for the U.S. are included in the separate

The U.K. is eligible for the visa waiver program for business visitors, which allows U.K. citizens to travel to the U.S. for 90 days or less for business-specific purposes without having to obtain a B-1 business visa. Stays longer than 90 days will require a visa. Individuals may return to the U.S. under the visa waiver program if a “reasonable length of time” has passed. The determination for a reasonable length of time is at the discretion of the Department of Homeland Security.

U.K. workers are eligible to work in the U.S. under H-2B visas, which cover labor or services of a temporary or seasonal nature in occupations other than agriculture or registered nursing. The number of H-2B visas issued each year is limited by U.S. law.

U.S. employers also must check the names of all new-hires and employees against the Specially Designated Nationals and Blocked Persons List, administered by the Treasury Department’s Office of Foreign Assets Control (OFAC). Because OFAC prohibits financial transactions with individuals on the list, employers cannot employ them and may face fines for failing to comply.

For tax purposes, U.K. citizens are subject to U.S. employment-based taxation on income earned in the U.S. unless they can claim an exemption under certain tax treaty provisions or they work under specific visa types that exempt earnings from taxes. The U.K. has both a tax treaty and a social tax totalization agreement with the U.S.

State and local taxation of U.K. workers also can apply, although some states within the U.S. recognize international tax treaties that can eliminate that income tax liability for foreign workers.

The U.S. labor laws apply to all workers employed and providing services in the country.

Work eligibility as an employee is contingent upon Department of Homeland Security and Labor Department approval and the employee receiving a U.S. Social Security number from the Social Security Administration.

Tax Residency: In general, employees working in the U.S. on a temporary basis are considered nonresidents for tax purposes unless they qualify for resident status. Employees can be granted permanent resident status through the so-called green card test or if they meet the substantial presence test under the U.S. tax code. More information on these requirements is in the

Permanent residents are subject to U.S. tax requirements the same as U.S. citizens and are taxed under the U.S. system on their worldwide earnings.

Income Taxes: Generally, nonresidents in the U.S. who are from the U.K. and are working in the U.S. are subject to U.S. taxes based on their U.S.-sourced income. Income is taxed differently based on whether it is categorized as wage income or nonwage income, which includes interest and dividends.

A Form W-4, Employee’s Withholding Certificate, must be filed by each employee with their employer. All nonresidents in the U.S. who are from the U.K. and are working in the U.S. must claim “single” in Step 1c, regardless of marital status; write “Nonresident Alien” or “NRA” in the space under Step 4c of the form; and may not claim “exempt” in the space under Step 4c.

Nonresident alien employees may adjust withholding using Step 2b or 2c of the Form W-4; certain employees also may be able to use Steps 3, 4a, or 4b. More information about Form W-4 requirements for nonresident alien employees is available in the

Although the versions of Form W-4 issued in 2020 or later significantly differ from the versions issued in 2019 or earlier, nonresident employees that filed a valid version of Form W-4 from 2019 or earlier with their employer do not need to file another Form W-4 with the employer unless they need to implement a change for their withholding. On Forms W-4 issued in 2019 or earlier, nonresident alien employees were required to check the “single” box on line 3, regardless of marital status; write “Nonresident Alien” or “NRA” above the dotted line on line 6; and were not permitted to claim “exempt” on line 7 of the form.

An additional amount is added to a nonresident alien employee’s wages for calculating federal income tax withholding, with the amount based on pay period frequency and the date of the employee’s most recently filed Form W-4. The table of additional amounts applicable to Forms W-4 from 2020 or later and the table applicable to Forms W-4 issued before 2020 are available in the

Nonwage income and self-employed foreign workers can be subject to income tax withholding at a flat rate of 30%.

Additionally, foreign workers may be taxed differently based on the specific type of visa they hold.

Tax treaties: The U.K. and the U.S. have a tax treaty with provisions addressing host country taxation of the nonresident workers. A summary of those benefits is listed in the Tax Treaty Exemption Comparison Chart. To claim the treaty benefit, the nonresident must file Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, with the employer.

Students, trainees and teachers in particular must include a statement with Form 8233 to claim a tax treaty exemption from withholding of tax on compensation for dependent personal services. This statement affirms that the student, trainee, teacher or researcher is temporarily in the U.S. for purposes of studying or has accepted an invitation by the U.S. government (or by a political subdivision or local authority) for the purpose of teaching or engaging in research for a period not expected to exceed two years for teachers and one year for students by a university or other recognized educational institution in the U.S. It also must affirm that the individual will receive compensation for services performed in the U.S. There is no limit placed on teacher or student compensation for U.K. residents.

Examples of the statements necessary to claim a treaty exemption from U.S. taxes are included in Internal Revenue Service Publication 519, U.S. Tax Guide for Aliens.

Social Taxes: Most foreign workers are subject to paying into the U.S. Social Security system. Foreign nationals who are exempt from paying income tax and who do not have the eligibility to receive a social security number may not be required to pay social taxes. Foreign workers contributing to Social Security for a certain time period may be eligible to receive benefits.

Generally, foreign workers in the U.S. that have specific visas as exchange visitors or students or who are temporarily in the U.S. for agricultural work are not subject to social taxes on income that is obtained from the purpose in which they originally entered the U.S.

Totalization Agreements: Social Security totalization agreements can allow foreign workers and U.S. nationals working abroad to avoid paying into two social security systems while being subjected to losing benefits for their home country system. Under totalization agreements, generally, foreign workers will only pay into one of the social security systems, either the home or the foreign system, but not both. Foreign nationals, utilizing a totalization agreement, also can count years of contributions paid to different social security systems to all of the systems they have contributed to in order to be eligible for benefits in one country.

The U.K. and the U.S. have entered into a totalization agreement and a summary of those provisions is included in

Wage Payment: Under certain visas for certain types of employment, employers are required to pay foreign workers the higher of either the prevailing wage or the actual wage that is paid to U.S. workers that have similar skills and qualifications.

There are no particular requirements that employees be paid in U.S. dollars.

TREATY ARRANGEMENTS

The U.K. has entered into more than 130 income tax treaties, including an income tax treaty with the United States . The U.K. also has more than 20 totalization agreements for social tax coverage purposes, including an agreement with the United States.

The U.K. has income tax treaties in effect between its European mainland and three of its crown dependencies and four of its overseas territories, and these treaties affect taxation of individuals who may have presence in some form in the crown dependencies, the overseas territories, or in the European mainland part of the U.K. The U.K. also has totalization agreements in effect with three of its crown dependencies.

The U.K.’s tax treaties are available in

RESOURCES

General

Gov.uk: Employing People

U.S. State Department:

U.S. Relations With the United Kingdom
International Travel Information: United Kingdom

U.S. Central Intelligence Agency:

The World Factbook: United Kingdom
The World Factbook: Languages

U.S. Department of Commerce:

Export.gov: United Kingdom - Market Overview
Export.gov: United Kingdom - Business Travel

U.S. Library of Congress:

Guide to Law Online: United Kingdom
Global Legal Monitor: United Kingdom

Currency Details

Unicode Consortium: Currency Symbols

International Organization for Standardization: Currency Codes - ISO 4217

United Nations: United Nations Terminology Database: United Kingdom

Taxes

Her Majesty’s Revenue and Customs:

Directory of PAYE Topics
Guidance on Paying Apprenticeship Levy
Income Tax Rates and Personal Allowances
PAYE: Starter Checklist
Redundancy Pay
Tax and Revenue Publications
Tax on Foreign Income
What Payroll Information to Report to HMRC
What to Do When an Employee Leaves
Understanding Off-Payroll Working (IR35)
Employment Allowance

Budget 2021 Documents

Health and Social Care Levy Act 2021

National Employment Savings Trust (NEST): Contributions

Compensation and Benefits

The Pensions Regulator: Managing a Pension Scheme

Her Majesty’s Revenue and Customs:

Guidance on the National Minimum Wage
Payrolling Benefits in Kind
Treatment of Termination Payments for Tax Purposes
Changes to the Treatment of Termination Payment and Post-Employment Notice Pay for Income Tax

Gov.uk:

Minimum Wage Rates, Effective April 1, 2022
Maximum Weekly Working Hours
Night Working Hours

The National Minimum Wage Regulations 2015, SI 2015/621

Uber BV and Others v. Aslam and Others [2021] UKSC 5

Her Majesty’s Treasury:

Coronavirus Job Retention Scheme

The Income Tax (Exemption of Minor Benefits) (Coronavirus) Regulations 2020, SI 2020/1293

The Income Tax (Exemption for Coronavirus Related Home Office Expenses) (Amendment) Regulations 2021, SI 2021/225

The Social Security Contributions (Disregarded Payments) (Coronavirus) Regulations 2021, SI 2021/242

Foreign Workers

U.K. Visas and Immigration: Work Visas

Her Majesty’s Revenue and Customs:

New Employee Coming to Work from Abroad
PAYE: Expatriate Starter Checklist
Tax on Foreign Income

Working in the United States

U.S. Department of Labor:

Foreign Labor Certification
Hiring Foreign Workers

U.S. Internal Revenue Service:

IRS Notice 1392, Supplemental Form W-4 Instructions for Nonresident Aliens
IRS Publication 15, Circular E, Employer’s Tax Guide
IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
IRS Publication 519, U.S. Tax Guide for Aliens
IRS Publication 901, U.S. Tax Treaties

U.S. Department of State: Visa Waiver Program

Tax Treaty Arrangements

Overview

CURRENCY DETAILS

TAXES

Income Taxes

Social Taxes

Other Taxes

State/Jurisdiction Taxes

COMPENSATION AND BENEFITS

Minimum Wage

Overtime

Hours of Work

Holidays

Leave

Wage Payment

Bonuses and Special Benefits

Termination Pay

Workers’ Compensation

Recordkeeping

FOREIGN WORKERS

WORKING IN THE UNITED STATES

TREATY ARRANGEMENTS

RESOURCES

Related articles