“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:
- 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:
- 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)
- 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
- Widowed Parent’s Allowance