Apprenticeship Levy

A tax on UK employers with an annual payroll over £3 million. The funds collected are used to support apprenticeship training. Group rules apply so the total payroll value for the group is used to assess whether an employer needs to pay.

Auto-Enrolment

A legal requirement for employers to automatically enrol eligible employees into a workplace pension scheme. Employers must also make contributions on behalf of their employees unless they opt out.

CIS (Construction Industry Scheme)

A tax scheme specific to the construction industry, where contractors deduct money from a subcontractor's payments and pass it to HMRC. The deductions count as advance payments towards the subcontractor's tax and National Insurance.

Directors National Insurance

There are two methods of calculating National Insurance for company directors: directors or cumulative and alternative or table method. Each will result in the same amount across the tax year with the alternative method applying bandings more similar to a regular employee.

Employment Allowance

A government scheme that allows eligible businesses to reduce their employer National Insurance contributions (NICs) by up to a certain amount each tax year.

EPS (Employer Payment Summary)

A report submitted to HMRC if an employer needs to reclaim statutory payments (e.g., SMP, SPP) or if no employees have been paid in a tax period.

FPS (Full Payment Submission)

A payroll report submitted to HMRC each time employees are paid. It details employee earnings, tax deductions, and National Insurance contributions.

Gross Pay

The total amount of money an employee earns before any deductions, such as tax, National Insurance, and pension contributions, are taken.

Gross Pay for National Insurance

The total pay subject to National Insurance, from which the National Insurance calculations will be applied.

Gross Pay for Tax

The total pay subject to tax, from which the tax calculations will be applied.

HMRC (His Majesty's Revenue and Customs)

The UK’s tax authority responsible for the collection of taxes, including Income Tax, National Insurance, and VAT. HMRC also administers the UK’s tax credits and child benefits.

Holiday Pay

The payment an employee receives while on annual leave. All employees are entitled to a statutory minimum amount of paid holiday, which is calculated based on their work hours.

IR35 (Off-Payroll Working)

Rules that determine whether a contractor working through a limited company should be classed as an employee for tax purposes. If caught by IR35, they must pay similar taxes to regular employees.

National Insurance (NI)

A tax on earnings used to fund various state benefits, including the NHS and state pensions. Employees and employers both contribute based on the employee’s income.

National Minimum Wage (NMW) & National Living Wage (NLW)

The minimum hourly rate that employers must pay their employees. The National Living Wage applies to workers aged 21 and over, while the National Minimum Wage applies to younger workers.

Net Pay

The amount of money an employee takes home after all deductions, including tax and National Insurance, have been applied. Often referred to as “take-home pay.”

P11D

A form that details the benefits and expenses provided to employees that are not included in their wages (e.g., company cars, health insurance). Employers must submit it to HMRC, and it may affect the employee’s tax. To be largely withdrawn from April 2026.

P45

A form provided to employees when they leave a job. It details their earnings and tax paid to date in the tax year. It is used by the new employer to calculate correct tax deductions. The P45 is reported to HMRC by the previous employer as part of the FPS.

P46

Withdrawn around 2013 and replaced by starter declarations. There are three starter declarations and depending on which is selected a tax code is generated.

P60

An end-of-year certificate given to employees by their employer. It summarizes total pay and the tax and National Insurance contributions deducted for the tax year.

PAYE (Pay As You Earn)

The system used by HMRC to collect Income Tax and National Insurance contributions directly from employees' wages or salaries. Employers calculate the deductions and submit payments to HMRC through Real-Time Information (RTI) submissions.

Payroll Year-End

The end of the tax year for payroll purposes (5 April in the UK). Employers must provide P60s to employees and submit year-end reports to HMRC summarizing payroll activity.

Pension Contributions

Deductions made from an employee’s salary to contribute to their pension scheme. These are usually paid into a workplace pension as part of the auto-enrolment scheme, with contributions from both the employee and employer.

Pension Re-Enrolment

Every three years, employers must reassess employees who have opted out of a workplace pension and re-enrol them if they meet the eligibility criteria.

Personal Allowance

The amount of income an individual can earn before they start paying Income Tax. The personal allowance is set annually by HMRC and may vary based on income or individual circumstances. This can be derived from the tax code.

Payslip

A document that outlines an employee’s earnings and deductions for a specific pay period. It includes gross pay, tax, National Insurance contributions, and any other deductions, as well as net pay.

Postponement

A postponement is used in auto-enrolment to delay the automatic enrolment of an employee. There are two types, worker and eligibility.

Qualifying Earnings

Banded earnings used in auto-enrolment pensions defined by The Pension Regulator.

RTI (Real-Time Information)

A system introduced by HMRC requiring employers to submit payroll data each time they pay their employees. This includes details of the amounts paid, tax deductions, and National Insurance contributions.

Salary Sacrifice

An arrangement where an employee agrees to give up part of their salary in exchange for non-cash benefits, such as childcare vouchers, an electric car, or pension contributions. It can offer tax and National Insurance savings for both the employer and employee.

Starter Declarations

See P46. All new employees should complete a starter declaration even if they arrive with a P45.

Statutory Maternity Pay (SMP)

A payment made to eligible employees who take maternity leave. Employers pay SMP on behalf of the government, but they can usually reclaim some or all of the amount from HMRC.

Statutory Paternity Pay (SPP)

Similar to SMP, this is a payment made to eligible employees who take paternity leave following the birth or adoption of a child.

Statutory Sick Pay (SSP)

The minimum amount an employer must pay an employee who is off sick for more than four consecutive days. The employer covers this cost and may later recover a portion from HMRC in some cases.

Student Loan Repayment

Deductions made from an employee’s salary to repay a student loan. The amount deducted depends on how much the employee earns and which repayment plan they are on.

The Pension Regulator

The Pension Regulator is in charge of enforcing auto-enrolment legislation and offers guidance and support to employers as well.

Umbrella Company

A company that acts as an intermediary between a contractor and their end client or recruitment agency. The umbrella company processes payroll, deducts tax and National Insurance, and pays the contractor a salary.