There is an amount of tax which does not need to be paid. This is known as your ‘Personal Allowance’. This is taken into consideration over all employments (i.e. you don’t have a separate allowance for each job or role).
You’ll find the allowance listed on your Tax Code – the numbers convert directly to an allowance.
The standard UK tax code is 1257L – this means you can earn £12,570 before paying any tax. If your tax code is different, the allowance will be adjusted accordingly.
Regional Differences
Taxation has been in place in some form or another since around the 1200s when export tax was added to wool, and import taxes on wine. There have also been the poor tax, a tax to help rebuild the City of London after the great fire, and finally a tax on the number of windows which a house had.
Income Tax in the current form has been applied in the United Kingdom since December 1798, when it was introduced as a way for the Government to fund the development and purchase of weapons and equipment in preparation for the Napoleonic Wars.
The original tax amount was 2 old pence in the pound on incomes over £60. In the first year, just over £6 million was raised.
But fast forward over the past few centuries and we now have a standardised tax system in place. The last major change was from April 2017 when Scotland used their new devolved powers to introduce a slightly different tax system to the rest of the United Kingdom.
As such, depending on where you live, you may have a slightly different income tax system.
England, Wales and Northern Ireland
2022/23 Financial Year
For the 2022/23 tax year, this is £12,570. The tax rate you pay then depends on your income above the Personal Allowance. In March 2021, the chancellor Rishi Sunak confirmed that this personal allowance will be frozen until 2026.
| Basic tax band (20%) | £12,571 – £50,270 |
| Higher rate tax band (40%) | £50,271 – £150,000 |
| Higher rate tax band (45%) | Above £150,000 |
2023/24 Financial Year
For the 2023/24 tax year, this is £12,570. The main change is to the higher rate tax band which has reduced thresholds.
| Basic tax band (20%) | £12,571 – £50,270 |
| Higher rate tax band (40%) | £50,271 – £125,140 |
| Higher rate tax band (45%) | Above £125,140 |
Scotland
The Scottish Government has different rates depending on your income.
2022/23 Financial Year
| Starter Rate (19%) | £12,571 – £14,732 |
| Basic Rate (20%) | £14,733 – £25,688 |
| Intermediate Rate (21%) | £25,689 – £43,662 |
| Higher Rate (41%) | £43,663 – £150,000 |
| Top Rate (46%) | Above £150,000 |
2023/24 Financial Year
| Starter Rate (19%) | £12,701 – £14,732 |
| Basic Rate (20%) | £14,733 – £25,688 |
| Intermediate Rate (21%) | £25,689 – £43,662 |
| Higher Rate (41%) | £43,663 – £125,140* |
| Top Rate (46%) | Above £125,140* |
* those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.
Examples
Example (2022/23): Amanda earns £10,000 in her job. The first £12,750 is tax free, therefore as she is not above this amount, her full income is tax-free.
Example 2 (2022/23 – England, Wales and Northern Ireland): Tom earns £20,000 in his job. The first £12,570 is tax-free. The remaining £7,430 is taxed at the Basic Rate of 20% which means he will pay £1,486 tax.
Example 3 (2022/23 – Scotland): Emma earns £20,000 in her job. The first £12,570 is tax-free.
The starter rate (19%) is applied to the next £2,162 = £410.78
The basic rate (20%) is applied to the remaining £5,268 = £1,053.60
Total tax paid is £1,464.38
Note: The examples above do not include National Insurance Contributions, but instead are designed to show how allowances work.
Employers will automatically calculate tax amounts on employment, and this is confirmed on your P60 annual summary. The figures from this document are required to complete a tax return when you’re self employed.
Have more than one job?
If you also have employment outside of being self employed, this may be slightly more complex as you will need information from your employer to complete your tax return.
When you receive your P60, this will include information on how much tax you have paid on your employment, and is taken into consideration when you declare any profits from your self employment.