The amount of income tax you pay depends on how much you earn. There is great news as we start our 2018-19 tax year, with increased thresholds for the Personal Allowance, Basic Rate and Higher Rate tax brackets.
What are the current income tax brackets?
The current tax year is 6th April 2018 to 5th April 2019. The tax brackets in England, Wales and Northern Ireland are as follows:
Personal Allowance amount: £11,850. You don’t pay any tax on anything you earn up to this amount. The Personal Allowance is reduced if you earn over £123,700.
Basic rate of 20% income tax is payable on earnings between £11,851 to £46,350
Higher rate of 40% income tax is payable on earnings between £46,351 to £150,000
Additional rate of 45% income tax is payable on earnings over £150,000
These are based on total annual taxable income amounts. The tax brackets and Personal Allowance amounts usually change annually. Changes are usually announced during the Chancellor’s Budget. The Scottish Government now has the power to set its own income tax rates, so you need to check this separately.
How is my income tax calculated?
There are basic steps that can be applied to every taxpayer’s income tax situation.
1. Work out your total income for the year.
2. Deduct your non-taxable income amount from your total; this leaves your taxable income total.
3. Deduct any tax reliefs and allowances from your total taxable income figure. These are dependent on your personal circumstances and type of employment.
4. You are left with the amount you will be taxed on and can work out the tax percentage.
How do I pay income tax?
The method of income tax payment depends on how you earned the money. If you are employed and on a PAYE system, then your income tax is automatically deducted from your salary before you receive it. Your employer sends it to HMRC and you should see the amount somewhere on your payslip.
If you are self-employed, rent properties, have earnings from abroad and in some other instances, you need to submit a self assessment tax return to HMRC declaring your income. The self assessment system is the way to inform HMRC of these kinds of income and pay the correct amount of tax.
I have more income tax questions…
Have a look at our Income Tax Guide for more information which includes: taxable and non taxable income, what income tax pays for and who collects income tax. There’s also a handy Income Tax Refund Calculator to help you work out how much your income tax rebate is worth.