You have to earn a certain income in a tax year (April-April), called a standard Personal Allowance, before you start paying any income tax.
For the 2016-17 tax year, everyone gets the same Personal Allowance of £11,000.
Your Personal Allowance can be higher if you claim Marriage Allowance or Blind Person’s Allowance. You may get less if your income is over £100,000.
So, how much can you earn before tax?
Income tax is a progressive tax. In other words, the rate goes up as your income goes up. How much tax you pay depends on what you earn over your Personal Allowance of £11,000. Here are the tax rates you pay in each band.
This means if you earn up to £43,000 or less but more than £11,000, you fall within the first (basic) rate band. Any income within this range gets taxed at 20%.
For example: If your salary is £40,000 this tax year then you won’t pay any tax on the first £11,000; and you will pay 20% on £29,000, which is the portion of your income above your Personal Allowance. The tax will be spread across the year.
The second (higher) tax band covers any income between £43,001 and £150,000; this is the amount above both your Personal Allowance and the basic rate.
For example: If your salary is £50,000 this tax year then you won’t pay any tax on the first £11,000; you will pay 20% on £29,000, and 40% on £10,000 which is the portion of your income above your Personal Allowance and the basic rate. The tax will be spread across the year.
If you earn over £150,000 a year, you will be taxed at a rate of 45%. Please make a note, anyone earning above £100,000 will have a lower tax-free Personal Allowance.
In the UK, you are taxed on things like:
- Money from employment
- Profits you make if you are self-employed
- Rental income
- Some state benefits
- Most state pensions
- Savings interest
- Trust income
- Dividends from company shares
Am I paying too much tax?
Thousands of people across the UK are paying more tax than they owe. It is worth checking - tax can be a very complicated and frustrating topic at times. If you are struggling, speak to an accountant for help.