Income tax bands explained: a how to guide
Income tax is a direct tax imposed on ones income, this can be earned (eg. income from ones job, this can be on an employed or self employed basis) or unearned income (eg. benefits).
The personal allowance
This is the amount an individual can earn before paying income tax. As in the 2021/22 tax year, the personal allowance is £12 570. However, the personal allowance only applies to individuals earning below £125 140 annually as your personal allowance goes down by £1 for every £2 that your adjusted net income is above £100 000.
*In some circumstances your personal allowance can be higher for example, if you claim marriage allowance or blind persons allowance.
Income tax rates and bands
How to calculate how much income tax you owe
- Subtract your personal allowance from your gross annual income, this will give you your taxable income
- Find which tax band you fit into
- Use the tax rates for each band to find out how much tax you owe
Example calculation:
- Emma’s gross annual income is £60 000
- Her personal allowance is £12 570
So, £60 000-£12 570=£47 430
The first £37 500 falls into the basic rate band so:
£37 500×0.2=£7 500
The remaining £9 930 falls into the next band, so:
£9 930×0.4=£3 972
So in total Emma pays £11 472 in income tax
Or you could use only tools such as the income tax calculator from MoneySavingExpert
Income tax on savings interest
If your income is less than £17 570 you can make £5000 in savings interest and not have to pay tax on it, this is your starting rate for savings. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.
3