How Much Income Tax Do You REALLY Pay? (UK Taxes Explained)

UK income tax is confusing and most people do not realise just how much tax they are paying on their income. Watch this video to see the UK tax system explained and EXPOSED in less than 10 minutes!

When people ask how much tax do I pay in the UK, they are often referring to income tax, however, they often forget about National Insurance.

UK employees also pay National Insurance tax, this is currently 13.5% for basic rate income and drops down to 3.5% for all earnings above the upper earnings limit.

Income tax explained is a popular search term as UK tax isn't as straightforward as it first seems.

The UK income tax rates are as follows:
- Basic Income Tax 20%
- Higher Rate Income Tax 40%
- Additional Rate Income Tax 45%

There is also a marginal tax rate known as the 60% tax trap, this applies to earnings between £100,000 and £125,000.

For every £2 earned above £100,000, employees lose £1 of their personal tax allowance they are effectively taxed at 60% on this part of their salary.

The personal allowance in the UK is £12570 and this is the amount that you can earn tax free.

[moklism]

Then add VAT, IPT, council tax, road tax, fuel tax etc.

[alanjackson]

Imagine have a drink on NYE and thinking "every year I have to work for free until 10th August".

[Announcement]

If we are being truthful to ourselves, just like the rich, taxes can be a big pain. Income tax, value added tax, property tax, etc. Paying taxes is good, but we could also create our own tax havens. I personally put my money mostly in the stock market, since its appreciation is not taxable, and then when I sell, I find ways to make the income non-deductible in taxes. I 'm currently sitting on more than $327k of cash, and I'm definitely throwing it in the market. Just thinking of how to not lose it all, since the market is red.

[Siritos]

I own a small but successful gym. We have recently moved into a new VAT threshold. Previously we were on a Flat Rate scheme of 8.5%, and now, because we turn over more than a measly £250, 000 per year we have to pay full rate VAT at 20%.

VAT completely and utterly FUCKS the gym industry. We have almost no costs to off-set against the VAT expense. For example, our monthly turnover is currently £30, 000. £6000 of that goes to VAT, and we claim back approx £500 per month. I could employ another 3 full-time employees with that money, or give each of my existing staff a great pay rise.

Our Business rates are almost £1000 per month.

I am so angry.

How have we got here?

How do none of these politicians see that the current tax levels are a noose around this entire country's neck? Slowly throttling businesses and households.

The fact that we remain profitable is a miracle.

How can we fix this?

Our public services, that we pay all this tax for, barely fucking work.

[EliseMiller-jifc]

Hey guys, I'm looking to invest but I don't know anything about the market. Any help? As well who can I reach out to?

[hughmanbeing]

Then add in the taxes on everything you It would be interesting to try to get some sort of estimate on that. Now there's a project 😊

[johnj]

So for most wage earners, they take between 33% and 43% of your earned salary, then they take council tax, car tax, carbon tax, insurance tax, fuel duty and then another 20%VAT on everything you buy. So our real tax rate for most people is more like 65% to 75% which is utterly disgusting if you think about it. What the hell do they do with all our money??

[luke]

The uk gov attitude is awful towards companies. I always thought those that start a limited company should have an incentive on tax breaks etc... as long as they employee people. They are putting their neck on the line, being entrepreneurs and employing people. That tells me the government like it as difficult as possible for people to become successful and tax the crap out of them. I ran a company for years, 15 employees give it all up to run a one man show and make similar profits. The admin, the hassle, I choose to close it down, it was doing good business but on a reassessment I could earn what I do now and not have the hassle of employees- if I had an incentive to keep going like paying less tax but keeping people employed I would have but I couldn’t be bothered and had to lay everyone off after 14 years. The UK trajectory for business and taxes is downward. The good times are done. Covid was the final nail in the coffin and now the global economy is on the brink.

[benny]

I could even watch much of your video because I know you are correct, I have made these calcs myself and conclude the same and so am furious about it! When I mention it to my buddies at the pub they completely disagree and say we only pay about 30%. I believe we pay a crippling amount of tax in the UK by which I mean crippling to the economy and therefore everyone's prosperity. The vast majority of people either don't understand this or don't want to understand this. Tax should be drastically cut, and when people say well where will the money come from, I'm afraid that government spending must also be cut to match if not more.

It's easy to be negative about all this, but we're just in a big inevitable cycle so don't worry, just do what's right for you and family and be stoic. If you really want to do something, move elsewhere if that's possible for you.

[malcolm_in_the_middle]

On top of this, you still pay council tax and VAT. Looking at VAT alone, in the first tax bracket alone, you pay 53.25%.

[varrik]

I live in Scotland and they have this insane bracket where middle earners get punished really hard. At £43, 662 your income tax rises to 41% but your UK national insurance rate stays at 12% (recently 13.25% of course!). This means you're paying an effective 53% tax rate until the national insurance rate drops back down to 2% at £50, 271. So on that income you get taxed heavier than someone earning over £150k. It's been that way since they devolved income tax here a few years ago and I have never understood why they don't change this. With brackets frozen here as well it's brutal for middle income folks, who aren't exactly living it up nowadays with the cost of living.

Oh and I also have a student loan from university in England, so stick an extra 9% on that and you're staring down the barrel of 62% tax if your pay rise bumps you up into this overlap.

Total madness, but I never hear it talked about or addressed!

[videocouk]

Self-employment is good. There are so many things you can write off against tax. Your 'phone contracts, land line, broadband, IT equipment, use of home as office and much more besides, depending what your self employment consists of. Many of these things you would have bought anyway but now they are discounted against your earnings if you use them (reasonably) for your business. My accountant earns his keep in this regard.

[pprreejj]

Worth mentioning the 'graduate tax' whereby workers are paying back their student loans and if you are on plan 2 may never even pay it all back before it gets written off. So total effective 'tax' is even higher than what was shown in the video.
Great video BTW !

[lesleywillis]

We wonder why an ever increasing number of people have decided to just not bother!

[rudy]

Makes me want to leave the country and take my productivity elsewhere. And despite all this tax, governments still borrow money and run a deficit. This is insane. Government have gotten far too big to the point its become a parasite on our lives. You also should consider that inflation is also a hidden tax levied on citizens as it results in government borrowing from central banks which erodes the value of our savings.

[James-ylkk]

Not to mention all the other taxes like council tax and VAT.

[aktolman]

Our government have done nothing in the last few years to encourage growth, at every turn they make it more difficult... and looking at the sheet, you can see why.

[mapryan]

Don't forget that if you're a student gradutating on a Tier 2 repayment loan, that would add 9% to the tax burden. So, a successful graduate earning between £100-£125k would be paying a rate of 72%. I mean, why even work anymore at that rate?

[ApexCypher_]

Also, the top 10% of earners pay 60% of the U.K. tax revenue. That’s why you need high earners.
Great information Darren, everyone should be made aware of how heavily everyone is taxed.

[paultopping]

Let’s not also forget that when you use what is left to buy anything you pay VAT of between 5% and 20% on non exempt products!!