UK Income Tax Explained - Tax bands and how to calculate it

The UK taxation system comprises different types of taxes, with income tax being the most significant one. In essence, income tax is a type of tax that you pay on your income, including earnings from employment, self-employment, pensions, and savings income above a certain tax-free threshold. The threshold for the tax year 2023-24 is £12,570, meaning that you will only pay income tax on earnings over this amount. However, your tax liability depends on your income level and how much of it is taxable. The UK has a progressive income tax system with multiple tax bands and rates, and the amount of tax you pay increases with your earnings.

It’s important to know the rates and allowances of UK income tax. The basic rate of income tax in the UK is currently set at 20%. This is for earnings over the Personal Allowance of £12,570 and up to £50,270. The higher rate of tax is set at 40%. This is for earnings from £50,271 to £125,140. There is also a top rate of income tax that is set at 45%, which applies to those who earn over £125,140 per year.

Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £125,140 or above. If this applies to you, you’ll need to do a Self Assessment tax return. If you don’t usually send a tax return, you need to register by 5th October following the tax year you had the income.

There are several allowances that can help reduce your income tax bill, including the personal allowance, which is currently set at £12,570. There are also several other allowances available, such as the marriage allowance and the blind person’s allowance, which can help reduce your taxable income and lower your overall income tax bill. It’s important to stay up to date with the current rates and allowances to ensure you’re paying the correct amount of tax and taking advantage of any available tax breaks.

You may be able to claim Marriage Allowance to reduce your partner’s tax if your income is less than the standard Personal Allowance. If you do not claim Marriage Allowance and you or your partner were born before 6 April 1935, you may be able to claim Married Couple’s Allowance.
You also have tax-free allowances for savings interest and dividend income, if you own shares in a company. You may also have tax-free allowances for your first £1,000 of income from self-employment - this is your ‘trading allowance’, and your first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme). You pay tax on any interest, dividends or income over your allowances.

If you’re a UK taxpayer and want to know how much income tax you owe, there are several ways to work it out. The easiest way is to use the HMRC online calculator. This tool will calculate your tax liability based on your income, any allowances you are eligible for, and any tax reliefs you may qualify for. You’ll need to provide your income details, including any income from self-employment, rental income, or foreign income, as well as information on any pensions, savings, and benefits you receive. The calculator will then show you how much tax you owe for the tax year, along with a breakdown of the tax bands and rates that apply to your income. Alternatively, you can check your tax code to see how much tax has already been deducted from your income and whether you are due any tax refunds.

#incometax #tax #taxes

The content of my videos is for information only and does not in any way constitute advice or a recommendation to act. If you wish to take action based on what you have seen in my videos, then please seek independent financial advice first. The aim of these videos is to provide you with factual information only.

Who Am I?
I am a fully qualified Independent Financial Adviser on a mission to make financial advice more accessible to all. Working at Horlock Holdcroft Financial Consultants Ltd, I am qualified to advise in all areas of financial planning including pensions, savings, investments and protection.

My Credentials
Diploma in Regulated Financial Planning
Currently working towards becoming Chartered

Follow Me

DISCLAIMERS
Investment carries risk and capital invested can go down as well as up - you may not get back the full capital invested.

Opinions are my own.

Horlock Holdcroft Financial Consultants Ltd is authorised and regulated by the Financial Conduct Authority.

[rinnin]

What if you earned £51k in total (pushed up by an upcoming public sector payrise & interest on saving). Do you get charged 40% on everything or just 40% on the £50271 - £51000 amount (& 20% up to the £50271)? Thanks

[rdtwirl]

Hi. Do we subtract our personal allowance before entering our income on the Hmrc self assessment?

[Lovechristamen]

How about a scrap metal merchant? How much tax do I have to pay?

[Lacronh]

Thanks for this helpful explanation. If a pensioner were to receive payment from a US Film company for copyrights to her book, so they can make a movie about it. Normally her income would be quite low, but in this case, it will end up being £800, 000 or more. Is it safe to assume this is taxable at the 45% rate (i.e., £360, 000)? If so, perhaps she should negotiate the deal to help cover the enormous tax she'll have to pay. Please let me know about this and anything else that would be helpful for those senior citizen I know.

[gamertagstories]

Thanks for this, how about if I get a bonus, will this be in the same bracket or would it be the higher bracket if for that month it would technically put you in the higher bracket? Hope that makes sense.

[babajideg.]

Please 🙏 help me understand my tax issue, i have two jobs (weekly paid - job A and monthly paid - job B. I want my job B to be identified as my 1st with HMRC and job A as 2nd job.
Please what do i do? Do i quit jobA, ? I have call hmrc i was told i can't change it. Thank you

[Charlesloqk]

When I hit £85.000 I got get a IVA right ? I’m from Portugal but I sell in uk from internet… how can I regist ?

[Danceup-dhkn]

I was earning 54k before tax then got promoted to 68k. After 6 months HMRC told me I owe 2k tax. Now im on a K tax code. Does this sound right.

[initialb]

"Income tax" is only part of the story... ~ 80% of my earnings goes into one tax or another and it's objectively too much! Any more and society as a whole will embrace a black market .

[phattang]

How much income tax only your way with this year 2024 .