Income Tax Bands Explained

When it comes to all things tax, it’s good to know where you stand. If you’re employed or self employed in the UK, you’ll belong to a particular tax band which is dependent on how much you earn. The bands are categorised into basic, higher and additional rates. These bands apply to those living in England, Wales and Northern Ireland, with Scotland having a separate taxation process. Find a local accountant

Here’s our guide on income tax bands explained to help you get clued up for your next request from the taxman. 

Personal Allowance

Everyone has a personal allowance of up to £12,500. Regardless of whether the money comes from your employment, self employment or a combination of both, if you earn under this amount you won’t be required to pay income tax. 

If you earn above £12,500 then the amount you are taxed still excludes this figure. Instead, it takes into account everything you earn beyond £12,500. If you are entitled to claim marriage allowance or if you are blind, then your personal allowance may be higher than the standard allowance. Those born before 6th April 1948 are also entitled to a larger personal allowance. 

Basic Rate

The basic rate of tax is 20%, and this is charged on earnings between £12,501 and £50,000. It’s estimated that approximately 25.8 million people pay the basic rate tax, which equates to around 85.1% of the population. 

As the average UK salary is £29,000, the majority of people are likely basic rate taxpayers. Though if you are employed, the tax will automatically be deducted from your gross pay, giving you a take home rate that’s slightly lower than your actual pay. If you’re self employed, your tax bill will be calculated automatically once you fill in a self assessment form. 

Higher Rate

Those who earn between £50,001 and £150,000 are subject to a 40% income tax. Only a small proportion of taxpayers fit into the higher rate category, though the figure has grown by 29% since 2010. 

Despite this, it is estimated that higher rate taxpayers pay 60% of the UK’s total tax, which collects around £185bn every year. 

Additional Rate

The additional rate tax band applies to anyone who earns £150,000 or above and is set at a rate of 45%. Perhaps unsurprisingly, most additional rate taxpayers live in London and the South East, with the least amount living in Northern Ireland according to HMRC figures. 

While £150,000 sounds like a high salary, with the additional rate tax applied plus national insurance deductions, this would give you a take home pay of £90,640. 

Find Out More

If the above information on tax bands has bamboozled you, then help is at hand in the form of an accountant. Regardless of what tax band you fit into, an accountant is best placed to pick up on any deductions you could receive on your self assessment. 

Plus, they can also advise on wealth management to ensure your money is working as hard as it should be. Compared with going it alone, it’s always a good idea to seek expert advice and keep up to date with the latest tax band adjustments.