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Basics

 

You can work out your tax by following these four stages:

1.Work out whether your income is taxable or not.

Some income is taxable and some is tax-free. See our page ‘What income is taxable’ for more information.

2. Work out the allowances you can deduct from your taxable income or your final tax bill.

There are several different tax allowances to which you might be entitled.

Every man, woman and child in the UK has a ‘personal allowance’. For 2018/19 the personal allowance for everyone (on incomes below £100,000) is £11,850.

There is also a blind person’s allowance for those who qualify. Despite its name, you do not have to be completely without sight to claim it, so if you have very poor eyesight, check if you could be entitled.

Higher age-related personal allowances might be available in previous years depending on when you were born. It is worth checking that you claimed them if you were born before 6 April 1938.

If you are part of a married couple or a civil partnership and either you or your spouse or partner was born before 6 April 1935, a married couple’s allowance might be available. Finally the marriage allowance, available to married couples and civil partners who are basic rate taxpayers where one of them has unused allowances.

You can find out more information on these allowances on our page ‘what tax allowances am I entitled to?’

3. Work out at what rate your income is taxed.

If you qualify,  some  savings income might be taxed at 0%. The rules for savings income changed on 6 April 2016.

A £2,000 Dividend allowance is available in 2018/19 (2016/17 & 2017/18 it was £5,000) and only amounts above this allowance will be taxable at your marginal rate. If you are a basic rate taxpayer 7.5%, higher rate 32.5% and additional rate at 38.1%.

Next, there is the basic rate band, where most types of income are taxed at 20%. Most people are within the basic rate band.

But for people with higher levels of income, 40% and 45% tax rates can also apply.

In Scotland there are 5 tax bands from April 2018.

See our section ‘what tax rates apply to me?’ for more detail.

4. Finally, consider whether you can deduct anything from your final tax bill.

The most common deduction is tax you have already paid, either in the UK or overseas.
But take care: some deductions might not be allowed and some tax is not refundable, for example, the tax credit on UK dividends.

Example calculation
To work out your tax, you have to do the following calculation:

  • First, take your allowances from your income to work out your taxable income.
  • Second, HM Revenue & Customs charge tax on your taxable income using the rates of tax that apply to you. The tax rates are set each year.

For most individuals with simple tax affairs the way the tax calculation works is as set out below. The tax year runs from 6 April one year to 5 April the next. Negative or minus numbers are shown in brackets.

£
Income – most income is taxable although some may be tax free xxxx
Take off your tax allowances xxxx
You are left with the amount of your taxable income xxxx
Calculate your tax liability using the tax rates that apply to you xxxx
Take off the amounts you get due to any special allowances xxxx
Take off any tax already deducted from the income you receive before you get it xxxx
Tax now due or (repayable) xxxx or
(xxxx)

So if you have a job earning £300 a week, you are single, your 2018/19 tax calculation would probably work out like this, using the table above:

£
Income – wages: £300 a week x 52 weeks 15,950
Take off your personal allowance (11,850)
You are left with the amount of your taxable income:
£15,950 – £11,850
4,100
Calculate your tax liability:
£4,100 x 20%
820
Take off the amounts you get due to any special allowances (None)
Take off any tax already deducted from the income you receive before you get it:
This depends on the PAYE code used for your wages but here we assume you were on the correct code for the whole tax year
(820)
Tax now due or (repayable) £ 0

Posted in: How do I work out my tax?