Let’s talk about taxes

 

In the UK most people have their tax automatically removed from their salary each month however this is not the case if you are, for example, self-employed. The amount of tax you pay will depend on how much you earn per year. This is because the government has different band rates for each earning bracket, they use these to decide how much tax you will be charged per year. Each tax year runs from 6th April to 5th April and you will usually receive a letter from the government stating your tax bracket for the upcoming year.

For most people there is a set personal allowance of £12,500 per year which is tax free. However, if you earn over £100,000 this isn’t applicable to you and the amount you can earn tax free per year is reduced. For those who earn less than £100,000, once you have earned over £12,500 per year your income will then be taxed depending on which band you fall into.

These are the current government tax rates:

The basic tax rate is 20%. To fall within this category your pay will be between £12,501 to £50,000 a year.

The higher rate is 40%. To fall within this category your pay will be between £50,001 to £150,000 a year.

The additional rate is 45%. To fall within this category your pay will be over £150,000.

Example of basic tax rate Example of higher tax rate
If you earned £23,000.

The first £12,500 is tax free.
The remaining £10,500 is taxed at 20%.

If you earned £55,000.

The first £12,500 is tax free.
£37,501 is taxed at 20%.
£499 is taxed at 40%.

Please note the above can vary depending on your individual circumstances. If you have any concerns about the rate you are being charged you can use this link to check that you are paying the right amount. If you believe you are being charged the wrong tax rate click here and you can look into how to get it changed.

Information was gathered from: www.gov.uk/income-tax-rates