TAX RATES
What is income tax and how does the personal allowance affect your wages?
WHEN you earn money you have to pay income tax on it - but only over a certain amount.
So how much can you make tax-free, and how much do you give to HMRC after that? We explain all.
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Income tax is paid at different rates depending on income, and some people pay nothing at all.
That's because there's something known as the personal allowance, which is an amount you can earn before you start paying income tax.
We explain how personal allowance affects your wages, and what you pay afterwards.
What is my personal allowance?
The personal allowance is the amount you can earn each year tax-free.
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It can change from one year to the next and is set by the government.
In the current tax year - which runs from April 6 2024, to April 5 2025 - the figure is £12,570.
However, this amount may be bigger or smaller if you claim certain allowances.
The marriage allowance is a tax break where one partner in a married couple can transfer some of their unused personal allowance to another.
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And people with sight issues can get the , which increases this tax-free amount.
But you don't get any personal allowance if you earn a very high salary.
Anyone earning over £125,140 a year pays income tax on all their earnings from the first £1 they make.
And anyone earning below that but over £100,000 gets a personal allowance that reduces by £1 for every £2 earned.
Income tax also applies to money you make outside of your job, not just your earnings.
But there are also some tax-free allowances on top of the personal allowance for these other sources of income.
If you are self-employed, you don't have to pay tax on savings interest, dividends and the first £1,000 of income.
However, you must send a tax return if, in the last tax year (6 April to 5 April), any of the following applied:
- You were self-employed as a "sole trader" and earned more than £1,000 (before taking off anything you can claim tax relief on)
- You were a partner in a business partnership
- You had a total of more than £100,000
- You had to pay when you sold or "disposed of" something that increased in value
- You had to pay the high-income child benefit charge
How do I file a tax return?
TO file a self assessment tax retun, you'll need to register with HMRC first, which will then issue you with a Unique Taxpayer Reference (UTR).
You must register for self assessment by October 5 if you have to file a tax return and you have not sent one before.
You can do so by visiting www.gov.uk/register-for-self-assessment.
If you've previously registered and already have a UTR, you don't need to go through this step again.
Once you've got your UTR, you can sign in via the "Self Assessment tax return" section of HMRC's website by visiting www.gov.uk/log-in-file-self-assessment-tax-return.
You can then file your self assessment tax return online.
The deadline for sending a return online is January 31 every year.
If you need a paper copy of the main Self Assessment tax return, call HMRC on 03000 200 3610 and request an SA100 form.
The deadline for sending a return using a paper form is October 31 every year.
You need to pay the tax you owe by midnight on January 31 each year.
HMRC accepts your payment on the date you make it, not the date it reaches its account.
File late and HMRC will issue you with a fine.
How do I calculate tax?
If you earn £12,570 or less, you currently pay no income tax.
On earnings between £12,570 and up to £50,270, you pay the basic income tax rate of 20%.
Wages of £50,271 and above are taxed at the higher rate of 40%.
And the additional rate of income tax, which applies to earnings above £150,000, is 45%.
The thresholds for income tax generally rise each year so that people can earn more without paying more tax.
However, the thresholds are now frozen until 2028.
How do I check my tax-free personal allowance?
Your tax-free personal allowance amount is usually reflected in your tax code, which can be found on your payslip.
The letter L in your tax code signals that you're entitled to the standard tax-free personal allowance.
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The letter M means you've transferred some of your personal allowance to your partner using the marriage allowance.
Meanwhile, the letter N signals the opposite - you've received some of your partner's tax-free personal allowance.
What are the different tax codes?
TAX codes on your payslip will tell you how much you should be paying to HMRC every month.
Here's our guide to what each of the letters mean:
- L - You're entitled to the standard tax-free Personal Allowance
- M - Marriage Allowance: you've received a transfer of 10% of your partner's personal allowance (£1,260)
- N - Marriage Allowance: you've transferred 10 per cent of your personal allowance to your partner
- S - Your income or pension is taxed using the rates in Scotland
- T - Your tax code includes other calculations to work out your personal allowance, for example, it's been reduced because your estimated annual income is more than £100,000
- 0T - Your personal allowance (which is currently £12,570) has been used up, or you've started a new job and your employer doesn’t have the details they need to give you a tax code
- BR - All your income from this job or pension is taxed at the basic rate (usually used if you've got more than one job or pension)
- D0 - All your income from this job or pension is taxed at the higher rate (usually used if you've got more than one job or pension)
- D1 - All your income from this job or pension is taxed at the additional rate (usually used if you've got more than one job or pension)
- NT - You're not paying any tax on this income
- Tax codes starting with K mean you have income that isn’t being taxed another way and it's worth more than your tax-free allowance
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