Understanding UK Income Tax Rates - NMK

The UK tax year starts on 6th April, and your tax will be calculated according to your income before tax and national insurance contributions. Your tax code is the reference HMRC will provide to your employer to work out how much income tax to take from your pay. It is provided on your payslip, but if you want to double-check, you can check your code online.

Outline

1. What are income tax rates?

2. What is UK personal allowance and how does it work?

3. What is the Standard deduction for 2022/23?

4. What are the UK tax brackets?

5. UK Income Tax rates and bands

6. How to calculate taxable income?

7. Which income brackets are the most taxes paid?

8. What do tax thresholds mean?

What are income tax rates?

Income tax rates are applicable percentages in tax you pay to HMRC depending on income levels. Income tax rates are levied on incomes above a particular amount, typically above £12,570. So, what are the income tax rates? The income tax rates depend on how much income you earn and can be levied at 0%, 20%, 40%, and 45%. For example, if you earn £60,000 a year, you can end up paying taxes of anywhere between 20% and 40%.

What is a UK personal allowance and how does it work?

UK taxpayers have personal allowances on income that they can earn before taxes are incurred. Hence when a taxpayer earns more than their personal allowance, then they incur tax charges at the applicable rates based on their total earnings.

The standard personal allowance on which no taxes are incurred is £12,570. The tax applicable on the first £12,570 of earnings is taxed at 0%, thus incurring no income tax charge. However, if you earn more than £100,000 within a tax year, the personal allowance is reduced by £1 for every £2 earned. It means that if you earn £125,140 you do not get a personal allowance and everything is taxed.

What is the Standard deduction for 2022/23?

The standard deduction is also referred to as personal allowance and is £12,570 for the tax year 2022/23 in the UK. The amount is affected by claims and earnings over £100,000.

What are the UK tax brackets?

The UK has a progressive tax system, which means the threshold increases as you earn more money. The brackets have a rate of 20% above personal allowance for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers. The table below shows the current applicable tax rates for England, Wales, and Northern Ireland.

UK Income Tax rates and bands

Band	Taxable Income	Tax Rate
Personal allowance	Upto £12,570	0%
Basic rate	£12,571 - £50,270	20%
Higher rate	£50,271 - £150,000	40%
Additional rate	over £150,000	45%

How to calculate taxable income?

To work out your taxable income, you need to;

1. Add up all your total income in the tax year:

Income from all sources must be added up. This includes employment income, income from self-employment, rental income, pensions, state benefits, and other taxable income. Deduct your personal allowance of £12,570 from total income.

The total amount is your non-savings income on which tax is paid. The first £37,700 (ie. £50,270 - £12,570) is taxed at the basic rate of 20%. Anything over this amount up to £150,000 is taxed at 40%. Any additional income over £150,000 is taxed at 45%.

2. Apply any applicable tax deductions:

You may be able to claim eligible allowances such as marriage allowance, property allowance, blind person's allowance, trading allowance, and other applicable allowances which lower your income tax liability.

Which income brackets are the most taxes paid?

The UK's progressive system means that the tax threshold rises as you earn more money. This means that individuals earning higher amounts will pay more in taxes. The most taxes are paid on earnings over £150,000.

What do tax thresholds mean?

Tax thresholds and tax brackets determines how much you must pay in income tax. It is determined on your level of income. Your tax threshold considers your personal allowance, employment income, and income from other sources such as interest earned on savings.

If you earn £12,570, you do not pay anything in tax.

The next threshold is between £12,571 and £50,270, on which you pay basic rate tax at 20%.

The next threshold is between £50,271 and £150,000, on which you pay higher rate tax at 40%.

The final threshold is taxed at 45% on anything above £150,000.