“How does Income Tax work? Do I pay Tax on all my income?”

This has been a frequent question asked, I am here to answer your questions.

Each tax year, you get a personal allowance. In our current tax year, the personal allowance is £12,500. You do not pay tax on this income.

Your personal allowance may vary if you claim:

•  Marriage Allowance

• Blind Person’s Allowance

• Your personal allowance can be smaller if your income exceeds £100,000

How does your Income Tax work?

Band	Taxable Income	Tax Rate
Personal Allowance	Up to £12,500	0%
Basic Rate	£12,501 - £50,000	20%
Higher Rate	£50,001 - £150,000	40%
Additional Rate	Above £150,000	45%

Are there any Income Tax Allowances?

Yes, there is a tax-free allowance for:

• Saving interest

•  Dividends

• Your first £1,000 of income from Self-Employment

• Your first £1,000 of income from property you rent (Rent a Room Scheme is not appliable for this tax allowance)

What do I pay Income tax on?

• Employment income (your salaries)
• Benefits from Employment such as company car, Medical insurance etc
• Profits from your Self Employment – Online and offline (above the trading allowance - £1000)
• State benefits such as

•   Bereavement Allowance (previously Widow’s pension)

• Carer’s Allowance

• Contribution-based Employment and Support Allowance (ESA)

• Incapacity Benefit (from the 29th week you get it)

• Jobseeker’s Allowance (JSA)

• Pensions paid by the Industrial Death Benefit scheme

• The State Pension

• Widowed Parent’s Allowance