Let’s be honest, no one really likes talking about tax, but it’s something we all have to know about, to make sure we’re receiving a fair wage and avoid getting into trouble with HMRC.
If you’re a temporary worker in the UK, it’s vital that you understand your tax obligations to ensure you’re not overpaying, or – worse still – you don’t encounter any unexpected financial burdens.
In explaining tax for temporary workers, it’s important to consider that this can include various arrangements, such as agency work, seasonal employment, or short-term contracts.
In this comprehensive guide, we’ll walk you through the key aspects of taxation for temporary workers in the UK, including; tax deductions, income tax, your tax code, filing taxes as a temporary employee, and important documents in relation to tax.
Before we start, for a little clarity: your ‘gross’ wage is what you earn before any deductions i.e. tax. Your ‘net’ wage is what you earn after all necessary deductions – also known as your ‘take-home pay’.
Determining your tax filing status
Your tax filing status relates to your employment status
Before working out what you should be paying in tax, it’s essential to work out your employment status.
As a temporary worker, you could be an employee, self-employed, or you might be paid through an umbrella company, if you work for an agency. Each category has its own rules in relation to tax.
The information below should help define your status when it comes to filing taxes as a temporary employee.
Employee: If you work for an agency or employer on a temporary contract, it’s likely you’ll be considered an employee. That’s how Indeed Flex works – we act as your employer.
Taxes will be deducted from your pay through Pay As You Earn (PAYE) by your employer or agency. These will come off of your gross wage automatically, without you having to do anything (and be shown on your payslip), and the remainder – your net wage – will go into your bank account.
The tax you pay will be a certain percentage of your gross wage, depending on the tax code you’re on. More on this later…
Self-employed: Self-employed temporary workers work independently and are responsible for managing their own taxes. If you fall under this category, you’re required to register with His Majesty’s Revenue and Customs (HMRC) as self-employed, and file a Self-Assessment tax return each year. Being self-employed means you have more control over your work and can deduct business expenses from your taxable income, but doesn’t allow for things like paid holiday time and sick pay.
Umbrella Company: Some temporary workers are paid through umbrella companies, particularly if they work through an agency. If this is the case for you, then the umbrella company will handle all tax deductions, and you’ll receive your net pay after all taxes have been paid. Working through an umbrella company has its advantages, but it’s essential to understand the fees and deductions involved.
Tax codes for temporary workers in the UK
Understanding your tax code
Your tax code determines how much tax is deducted from your pay, as an employee. At a glance, tax codes look complicated – a jumble of seemingly random numbers and letters – but it’s vital you understand yours, to ensure it’s correct. Otherwise, you could end up overpaying or underpaying. Your tax code is set by HMRC and is based on a number of different factors, such as your income, allowances, and deductions.
The tax code that the vast majority of people are on, across the UK, is 1257L.
In this instance, the number relates to the amount you’re allowed to earn before you have to start paying tax, while the letter relates to your tax situation.
So, ‘1257’ means you’re allowed to earn £12,750 in the tax year, before you start being taxed.
The letters have the following meanings:
- L: You’re eligible for the standard tax-free Personal Allowance.
- M: Marriage Allowance is being transferred from your partner.
- S: You’re being taxed at the Scottish Rate.
If you suddenly receive a new tax code or notice something doesn’t quite look right, contact HMRC as soon as you can.
Income tax for temporary workers in the UK
Income tax and how it works
Simply put, Income Tax is the tax you pay on your earnings. It is, sadly, unavoidable – everyone in the UK has to pay tax, unless they earn below a certain amount.
The amount of Income Tax you pay depends on your income level and tax code.
In the UK, the tax year runs from 6th April to 5th April of the following year. For the current tax year, 2023/2024, the income tax rates for individuals are:
- Personal Allowance: The amount of income you can earn before you start paying income tax is £12,570.
- Basic Rate: Income between £12,570 and £50,270 is taxed at 20%.
- Higher Rate: Income between £50,270 and £150,000 is taxed at 40%.
- Higher Rate in Scotland: Income between £50,271 and £125,140 is taxed at 40%
If you’re self-employed, you’ll need to calculate the income tax you owe and include it in your annual Self-Assessment tax return. Remember to keep detailed records of your income and allowable expenses to accurately calculate what you owe.
Long story short though, if you earn more than £242 per week, you’ll pay tax.
If you’re unsure how much you should be paying, there are useful guidance tools online.
Further temporary worker tax obligations
Paying National Insurance Contributions (NICs)
For employees, both you and your employer will contribute to NICs. The standard rates for employees are:
- Primary Class 1 NICs: 13.25% on earnings between £12,570 and £50,270 per year.
- Additional Class 1 NICs: 15.05% on earnings above £50,270 per year.
- Class 1 NICs in Scotland: 12% on earnings between £12,584 and £50,284 per year.
On any payslip you get, you’ll see your National Insurance Number (NINO). This is unique to you and ensures NICs are made in your name.
It’s important to keep track of your NICs to ensure you receive the benefits you’re entitled to.
Important tax documents for temporary workers
Your P60 and P45: what they mean
Both your P60 and P45 are important documents in relation to your earnings and tax status and you need to keep hold of them, and file them away safely.
Your P60 is a document you’ll receive automatically (no need to request it), for every tax year you work with an employer. It shows the tax you’ve paid on your earnings in that tax year and you should receive it by 31st May.
Your P45 is what you’ll receive when you leave your most recent employer, and are removed from their payroll. They have to provide it to you, by law. It shows all of your earnings and deductions, from the beginning of the tax year to the point at which you leave them.
Your P45 provides any prospective/new employer with details of how much taxable salary you’ve paid over the course of the current tax year.
Temporary worker tax obligations: staying on track
The importance of keeping tax records
Whatever your employment status, it’s vital to keep accurate and up-to-date records of your income, expenses, and any relevant paperwork, such as payslips and invoices, and the above-mentioned P45 and P60 documents. This will help if you’re completing your tax return and ensure you can claim for any eligible deductions or allowances.
For self-employed temporary workers, the tax year in the UK runs from 6th April to 5th April. The deadline for submitting your Self-Assessment tax return is usually 31st January following the end of the tax year.
Submitting your tax return late can result in penalties and interest charges, so it’s essential to meet the deadlines set by HMRC.
One final tax tip
If in doubt, seek professional advice
Working out the UK tax system can be complex. So, if you’re unsure about how much tax you should be paying or need assistance with your taxes, we’d advise that you seek professional advice from a qualified accountant or tax adviser.
A tax professional can help you to understand your tax situation, minimise deductions, and ensure you meet all necessary deadlines. Yes, it’s an additional expense, but the peace of mind and potential tax savings that come from expert advice should far outweigh the cost.
If that’s not an option, you can also seek free advice from organisations such as Tax Aid, who’ll be only too happy to help you.
Tax for temporary workers: in summary
As a temporary worker in the UK, understanding your tax responsibilities is essential, so that you pay the correct amount of tax and don’t encounter any issues with HMRC. So, whether you’re an employee or self-employed, staying on top of the tax rules will ensure you’re not out of pocket, as well as giving you peace of mind.
If you can spare the time, take a moment to look at our page on how your payslip is broken down and what each section means, to give you an idea of the realities of tax in relation to temporary work.
Remember, tax is an aspect of working life that is simply unavoidable, so it’s vital you understand it in respect of your financial wellbeing.
By being proactive and organised, you can navigate the tax system with confidence.
Download the Indeed Flex app today and benefit from a world of temporary work opportunities across all different industries and employers.
Do you get taxed on 20 hours a week?
Whether you are taxed on 20 hours a week depends on your total annual income and your tax code. In the UK, you start paying income tax when your earnings exceed the Personal Allowance, which is £12,570 for the tax year 2023/2024. If your income is below this threshold, you won’t be taxed. If your annual income, including all sources, exceeds this amount, you may be subject to income tax, but the amount of tax will depend on your specific tax code and the tax bands.
Do you pay National Insurance on a temporary job?
Yes, if you are employed in a temporary job in the UK, you are generally required to pay National Insurance Contributions (NICs). The exact amount you pay depends on your earnings and whether you are an employee or self-employed. Temporary employees typically pay Class 1 NICs, with varying rates depending on your income level. These contributions are important for your eligibility to receive certain state benefits, such as the state pension.
Do I pay NI on a second job?
Yes, if you have a second job in the UK, you may be required to pay National Insurance Contributions (NICs) on your earnings from that job as well. Each job is assessed separately for NICs, and if you earn above the threshold for each job, you will pay NICs for each. However, you may be able to defer some NICs if you overpay and claim a refund later.
Are temp workers entitled to holiday pay?
Yes, temporary workers in the UK are generally entitled to holiday pay. The amount of holiday pay you receive is typically calculated as a percentage of your earnings, and this is paid in addition to your regular wage. Holiday pay is an important employment right to ensure that temporary workers receive compensation for the time they take off work for holidays.
Do temporary workers pay tax?
Yes, temporary workers in the UK are subject to income tax just like permanent workers. The amount of tax you pay depends on your total income, tax code, and the tax bands that apply for the tax year.