UK Income Tax Explained (UK Tax Bands & Calculating Tax)

Are you in the UK and want to have your Income Tax Explained? Well in this video, that's exactly what we are going to do. Income Tax in the UK doesn't need to be so complicated, so let's get it explained.

So let’s start with a bit of housekeeping. All the rates and numbers I’m going through in this video are accurate at time of filming. You see the first thing you need to know is that instead of agreeing with the basic concept the romans came up with of when a year starts, HMRC begin their confusion by saying that a tax year runs from 6th April to the 5th April. Oh, and HMRC stands for Her Majesty’s Revenue and Customs by the way, they are in charge of collecting the tax. Think of them as the Queens debt collectors if you will.

So although the basic concepts discussed in this video will be the same, the rates can change from year to year as per the chancellors budget so make sure that you know the rates applicable for the year when you are watching this.

If you're in Scotland, your income tax rates are different too!

How much income tax you pay in each tax year depends on how much of your income is above the personal allowance and how much of your income falls within each tax band. We’ll run through some examples in a minute.

The personal allowance is the amount of money you are allowed to earn before you have to pay tax. Currently, it’s £12,500. So if you earn less than this, you keep it all.

Next is the basic rate band. This is all income over the £12,500 personal allowance and under £50,000. You’ll pay 20% on any income that falls in this band. So for every £100 in this band, you'll pay £20.

Next is the higher rate band. If you earn over £50,000, you’ll pay 40% on this portion of your income until you get to £150,000. So for every £100 in this band, you’re going to lose £40 in tax.

If you earn over £150,000 you’ll pay additional Rate tax of 45% on any amounts over this. For every £100 in here, you’re going to give up £45.

One of the common misconceptions people often have is ‘there is no point me earning more money because I’ll just pay more and more tax and won’t see any of it.’ Not true.

The Personal Allowance goes down by £1 for every £2 of income above £100,000 and it can go down to zero. So if you earn more than £125,000 you actually lose your personal allowance entirely.

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Hi there! My name is Tom Morgan, Founder & Financial Planner of Orca Wealth Ltd, welcome to my YouTube channel ‘That Finance Show’. I’m very glad to have you here because this channel gives me the opportunity to help people and share information with those who wouldn’t normally get it.

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RISK WARNINGS

When investing remember, your capital is at risk. Investments can fall and rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may be subject to change. This channel is for information and entertainment only. The information provided by Tom and That Finance Show is not intended to address your particular requirements and should not be construed as advice. Neither Tom or ‘That Finance Show’ will not be held responsible for any actions you take as a result of watching these videos.

[ThatFinanceShow]

Two things: The Queen was not harmed in the making of this video. Yes, I know I put too much milk in my tea.

[chineduogbu]

i just learned how to calculate tax in less than 10mins because of you.. i have been struggling for months...thank you

[mraudio]

Brilliant video! The sublte uses of witty humour and clear use of examples makes it more interesting and successful to learn

[LifewithMiu]

This is very useful information! It was explained very clearly. Thank you!

[adetooni]

so, do I subtract the personal allowance first before checking which bracket I'm in?

[mohj]

Say you get your salary from an employer who already deducts PAYE and then you earn interest form a savings account too, do you pay the savings interest seprately or do you add it to the income earned from your salary and then pay tax for that full amount?

[flamingsunshine]

Thank you so much for breaking it down into a way it was easier to understand

[chrisclarke]

Are there any other taxes to look out for or is it just Income tax you will have to pay within the UK?

[whu]

Does your tax calculator have a section for adding benefits like PIP & Pension credit?

[maxkster]

Nice and clear thx!
Can you explain if i get pay rise from £17.5/h to 18, why my weekly wages only go £3.5 higher after tax, and £35 higher before tax? I am done 48 hours in a week, so this is not adding up. Thx

[kinberley]

brilliant video really clear to understand thank you

[SarahSmith-ymri]

What a minute, do different rules not apply to people who live in scotland??

[henseltbrumbleburg]

That website at the end was a god emperor recommendation, thank you!

[rubieorganista]

I'm here in the philippines, someone want to send money for me from UK.. May I ask, should I pay any tax?

[holeydel]

Could someone explain one thing for me please? Why is it when I check my payslips from the beginning of the financial year (those within the personal tax allowance) do I see tax deductions?

[ndy]

Hypothetical questions. Say someone is on a 45k basic. But then earns 1k commission for 9 months of the year. Does the 40% happen on month one when commission is earnt. Does Hmrc see this comms as every month and then you get a rebate? Trying to work this out so I can pay more into pension to take me below the 40% (on the amount over £50, 000***. Sorry for the long question. Thanks!

[petermurphyable]

I get paid weekly and, with overtime, I will be creeping over the £50000 barrier on week 49. What will I pay in the remaining weeks? Will it affect how much tax I pay the following year?

[MagicForWiseguys]

thank you, this was very funny and it helped a great deal

[Fadajasi]

Hi, please I have a question, I got my first job in the uk in July and I wasn’t taxed for the first 3 months, but got taxed this month of October, what does this imply? Was I supposed to be taxed yet?

[JustChim]

Thanks for the information! it's very clear and easy to understand. the calculator website is useful, i like it a lot! But may I ask how can I apply the tax refund?