Wages, Taxes, Pensions and Other Deductions

Here, we provide details of legal minimum wages, taxes, national insurance contributions and pensions.

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National minimum wage

Employers must pay a minimum wage by law. If you are aged 21 and over, this is referred to as the National Living Wage and is set to £11.44 per hour. See National Minimum Wage and National Living Wage rates – GOV.UK (www.gov.uk) for more information.

Some companies voluntarily choose to offer an increased wage to reflect the true cost of living. If you work in London, this is £11.95 an hour (the London Living Wage), and outside London, it is £10.90 an hour.

Income tax

The tax year in the UK runs from 6th April 2023 to 5th April 2024 i.e. any calculations of how much tax you should pay in a year are linked to your earnings between these dates.

Everyone gets a personal allowance, which for most cases is set at £12570, i.e. if you earn below this amount, you should not need to pay tax.

Income received from benefits such as Universal Credit, Housing Benefit and Pension Credit is not counted as taxable income. Some tax is due on Child Benefit if you earn over £50000.

From £12571 to £50270, the tax rate is 20% (also known as the ‘basic rate’).

Anything earned between £50271 and £150000 is taxed at 40% (also known as the ‘higher rate’).

See https://www.gov.uk/income-tax-rates for more details, and how these rates vary for Scotland.

Income tax is paid to the Government department called HMRC (His Majesty’s Revenue and Customs). It is usually deducted at source i.e. if you are paid a salary, your employer automatically deducts tax using a tax code given to them by HMRC from your gross salary, before paying you your net salary. This system is called PAYE, or Pay As You Earn. (The other system of taxation is through ‘self-assessment’, where you declare your income to HMRC, and they tell you how much tax to pay; this would be the case if you were self-employed for example.)

See https://www.gov.uk/tax-codes for a description of tax codes. HMRC says that 1257L is the usual tax code for people with one job or a pension. If you change jobs, you should receive a form called a P45 from your old employer, which you give to your new employer, so that they can provide details to HMRC of your income to date, and ensure that you are on the right tax code.

Refer to our guide Self-Assessment Tax Return in order to check if you will need to complete a self-assessment tax return (for example, you earn over £50000 and are receiving Child Benefit, or are doing work in Ukraine).

National Insurance

National Insurance is a separate type of deductable contribution, in addition to income tax. National Insurance contributions are made while you are working and go towards your state pension and other benefits – it’s effectively an ‘insurance’ for when you are in a situation when you can’t work. It isn’t posible to opt out of this.

The amount you pay depends on how much you earn. Rates are given here: https://www.gov.uk/national-insurance/how-much-you-pay. Like income tax, it will usually be deducted at source by your employer before they pay you.

You can start work without your National Insurance Number, but you will need it eventually; you can easily apply for this online.

Workplace pensions and opting out

If you earn over a certain amount and meet certain other criteria, you and your employer are required to make a minimum contribution into a workplace pension scheme. These will be deducted from your payslip. The rates are typically a 3% contribution from your employer, and a 5% contribution from you. See https://www.gov.uk/workplace-pensions and in particular, https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay for more information.

As a refugee, if you are intending to return to Ukraine longer term, you may wish to tell your employer that you want to opt out of paying into your pension. You can do this at any time, but have this conversation as soon as you start work, as otherwise it may not be possible to access any money you have already put into your pension fund until you’re aged 55 or more. See https://www.gov.uk/workplace-pensions/if-you-want-to-leave-your-workplace-pension-scheme for more details.

Is it possible to withdraw what you have already paid into a UK pension?

Unfortunately, it is not generally possible to withdraw the money which you already paid into a UK pension fund before you opted out. Part of the reason is because the money paid into a pension provider was not subject to the usual level of taxation (and is thus stored for you long term in a tax-efficient way).

We asked about the possibility of transferring the UK pension funds to a Ukrainian pension provider on return to Ukraine. HMRC provided us with the following information (reworded slightly to be more understandable):

For someone to transfer their pension savings from a UK pension scheme to an overseas pension scheme without incurring an unauthorised payment charge, the overseas scheme must be a Qualifying Recognised Overseas Pension Scheme (QROPS). If the overseas pension scheme is not a QROPS, the transfer will incur a 40% charge [note that this is effectively to compensate HMRC for the tax which in effect was not applied to your pension contribution] with an additional 15% scheme sanction (i.e. penalty) charge applied to the UK registered scheme. The UK pension scheme is entitled to reject the transfer to avoid the charge. You can find more information on transferring UK pension savings to overseas pension schemes at: www.gov.uk/transferring-your-pension/transferring-to-an-overseas-pension-scheme.

The government publishes a full list of Qualifying Recognised Overseas Pension Schemes, which you can find at: https://www.gov.uk/guidance/check-the-recognised-overseas-pension-schemes-notification-list. [Note that there are no recognised pension providers listed under ‘Ukraine’.]

If someone accesses their pension savings before the normal minimum pension age, they will also incur an unauthorised payment and scheme sanction charges. The minimum age is currently 55, but will rise to 57 in April 2028. The unauthorised payment charge applies regardless of whether the person accesses their pension in the UK or from abroad. If someone moves abroad, they can avoid an unauthorised payment charge if they leave their pension in a registered UK pension scheme and wait to access their UK pension savings until they reach the normal minimum pension age, even if they are no longer in the UK. The tax treatment of those pension benefits will be dependent on the terms of any double taxation agreement in place between the UK and their country of residence.

To summarise the implications:

  • It is not possible to access your UK pension fund before the minimum pension age, without incurring a significant charge (at least 40%)
  • It is not possible to transfer your UK pension to a Ukrainian pension fund provider instead, without also incurring a significant charge (and even then, the UK pension provider might not agree to the request, as they will also be subject to a charge)
  • Any UK pension income may be subject to Ukrainian tax when you start receiving it (From age 55 / 57)

In this case, it may be preferable to keep your pension funds invested in the UK pension provider. We advise the following:

  • Make sure you can access your pension account online (you should have been sent login details by the pension provider e.g. Aviva, Scottish Widows, NEST etc depending on which provider your employer uses)
  • Make sure your pension provider has an up to date address for you if you decide to go back to Ukraine, so that important documents can still be received
  • Don’t forget about this money – when you reach age 55 / 57, your pension contributions could be worth a reasonable amount of money if invested carefully by your pension provider. This is YOUR money!
  • You will be communicated with by your pension provider when you can access your funds, another important reason to make sure they have up to date contact details.
  • To make things easier to track and manage, you may want to consolidate your UK pensions in one place. If you change jobs, you can usually request a transfer of the pension in the pension provider which your previous employer used, into the pension provider of your new employer.
  • Remember, you can always opt out at any time to avoid more funds being deposited in your pension fund.

Calculating your take home pay

‘Take home’ pay is what you actually receive once all deductions have been made from your gross salary.

You can use an online tax calculator to input your gross salary and pension contributions, and see what you should receive each month; one such example is: https://www.moneysavingexpert.com/tax-calculator/.

You can use such a calculator to check your payslip looks correct. Your payslip also shows your tax code.

What to do if your tax deductions don’t look right

If you have checked your tax code is correct, and you have checked your take home pay, and it doesn’t look correct, you may need to wait till the end of the tax year for HMRC to calculate the final tax position, and then send you a letter if they think there is a problem (either way). The letter will tell you how to get a refund, or how to pay the tax owed. See https://www.gov.uk/tax-overpayments-and-underpayments for more information.

After the end of the tax year, you should be able to use this HMRC online calculator to see if you have paid too much tax. You can wait for the HMRC letter, or you can ask for the refund using a form P50, but only if the conditions listed are met. Note that we have not personally tried this process.

HMRC tax refunds

HMRC will contact you by a P800 letter between June and November following the end of the tax year (5th April) if they have calculated that they owe you money. You can claim your refund by following the instructions in the letter. See https://www.gov.uk/tax-overpayments-and-underpayments/if-youre-due-a-refund for details of the process.

You may be able to claim your refund online, which will involve creating a Personal Tax Account, and getting the money transferred to your bank account. In order to create a Personal Tax Account, you will need to create what is known as a ‘Government Gateway ID’. Your identity will need to be verified and for this, HMRC provide a number of options, as described on their website.

If you don’t have UK forms of identification such as a UK passport or driving licence, don’t worry. You can use the details on a payslip from the last 3 months to verify your identity, or a P60 form received from your employer. When you use these methods, HMRC will ask you a series of questions that only YOU should know the answer to, such as:

  • Approximately when you last opened a UK bank account
  • The amount of tax or National Insurance you paid on your payslip

Enter these details as accurately as possible. What HMRC is doing in the background is comparing information it already has or can access about you (such as your credit file) with the information you enter. If they match, HMRC can say that it really is you and your identity is considered ‘verified’.

You can then provide your bank account details, and you should receive the refund owed within a few days into your account. If you do not claim your refund online within 3 weeks, then HMRC will send a cheque to your address within 6 weeks.

Alternatively, if your letter says you will get a cheque (and does not invite you to claim online), you should get a cheque within 2 weeks.

You should be able to use your bank’s online banking app to photograph and upload the cheque as a way of paying it into your bank account.

It is possible that your Universal Credit income will be affected by receiving the tax refund (as Universal Credit gets details of your income from HMRC an adjusts how much it pays as a result).

If you have already returned to Ukraine, and want to check if HMRC have sent you a tax refund letter or cheque to your UK address, you can contact HMRC.

HMRC tax refund text message scam

Some people are being sent text messages claiming to be from HMRC, saying that they are owed a tax rebate or refund. When clicking on the link inside the text, you are taken to a very realistic looking web page claiming to be a Government web page.

This is a scam. HMRC confirmed to us: “We will never send notifications of a tax rebate or ask someone to disclose personal or payment information by text message. Anyone receiving a potential fraudulent text message should take a screen shot of it and send it to: phishing@hmrc.gov.uk. They can also forward the message to 60599.”

What to do if you are returning to Ukraine

If you are returning to Ukraine permanently, you should follow the process described here to inform HMRC: https://www.gov.uk/tax-right-retire-abroad-return-to-uk.

You will either fill in a P85 form, or if you are registered for self-assessment, you can let HMRC know through the self-assessment form SA109. HMRC advises: “All individuals leaving the UK permanently or working abroad for at least one full tax year should complete a form P85. This allows HMRC to check a customers’ tax records and notify them whether a tax refund is due or not.”

If you have already returned to Ukraine, and believe you may be owed a tax refund, you can contact HMRC.

If you or your employer have paid any money at all into a UK pension provider, make sure your UK pension provider knows how to contact you in the future and make sure you can access your UK pension account(s).

How to contact HMRC

If you need to contact HMRC, the various methods of contact are available here: Income Tax: general enquiries – GOV.UK (www.gov.uk). You may find it easier to use a webchat – at first you will be speaking with a chatbot, but you can ask to speak to an agent.

There is a link on this page to getting further support from HMRC if needed: Get help from HMRC if you need extra support: Help you can get – GOV.UK (www.gov.uk). HMRC offer an interpretation service if a customer is not able to speak English and there is nobody in the household aged 16 or over that can interpret for them.

Further help and advice

Further help and advice on matters relating to taxes and pensions is available from the Low Income Tax Reform Group guides: https://www.litrg.org.uk/tax-guides/