Every person in the UK gets a certain amount of tax free allowance each tax year. This means that you don?t pay tax on this amount of your earnings. For the 2012/13 tax year which started on April 6th, the standard tax free allowance (also known as your personal allowance) is ?8,105.
If you earn less than this then you won?t pay any tax. You pay tax on anything above this amount and the percentage you pay will depend on your income level. This handy tax calculator is perfect for checking how much tax you will pay based on your income.
For an income level of ?0-?34,370 you would pay 20% tax on anything over ?8,105 ? this is known as the basic rate.
Higher rate tax is chargeable at 40% and is deducted on any earnings that fall between ?34,371 and ?150,000. This is in addition to the 20% payable between ?0 and ?34,370.
Additional rate tax is a whopping 50% and this is charged on any earnings over ?150,000. Again, this would be in addition to the higher and basic rate band deductions.
There are also a number of increases available to your personal allowance depending on age and circumstance. Here?s a quick breakdown of the extras:
- Aged 65-74. If you are between these ages, then your personal allowance rises from ?8,105 to ?10,500.
- Aged 75+. If you are over 75 then you get an extra increase of ?160 to ?10,660.
- Blind persons allowance. If you are registered as blind, then an additional ?2,100 is added to your total personal allowance amount.
Other tax free allowances are available for married couple over a certain age, and some people are exempt from making National Insurance contributions, which increases their net income.
There are of course exceptions to these income tax rules, which is why using an income tax calculator is a good way to check what your actual personal allowance is. If your income level is over ?100,000 (or over ?25,400 for people aged 65+) then your personal allowance can actually be decreased by ?1 for every ?2 over the limit you are.
Another thing to take into consideration when trying to work out your income tax, NI and net pay is whether or not you pay into a pension, have childcare vouchers through your employer, or earn enough to repay your student loan.
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