January 14, 2021
by  Rubi Shan

Income Tax

“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

For more specific information feel free to contact us.

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