Understanding how Income Tax works is vital for anyone earning an income in the UK. This is particularly true if you are self-employed, a company director or someone who has various streams of income.
Even if you are on Pay as You Earn (PAYE), having an understanding of tax bands can help you make better financial decisions.
What are tax bands?
Income Tax is generally calculated based on a progressive system, which means the more you earn, the higher the percentage of your income you will pay in tax, but only on the income over certain thresholds.
The thresholds are categorised into different ‘bands’ or tiers’, which dictate how much tax you owe.
The Income Tax rates for the 2023/24 tax year are as follows for England, Northern Ireland and Wales:
Scotland has different rates and bands.
How do tax bands work?
Tax bands are applied progressively. Please see how below:
Let’s say you earn £60,000 per annum.
The total tax liability will be £7,539.80 (basic rate) + £3,891.60 (higher rate) = £11,431.40
Understanding Income Tax rates and bands can seem complex, but breaking it down makes it more manageable.
It is essential to stay updated as tax bands and rates can change.
Always consider consulting an accountant for tailored advice to your situation.
If you would like advice on your personal Income Tax situation, please don’t hesitate to get in touch.