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).
2021/22 Financial Year
This information is for England, Wales and Northern Ireland. Scottish tax payer information is below.
For the 2021/21 tax year, this is £12,570 (and increase of £70 from 2020/21’s value of £12,500). 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.
The current bands are:
|Basic tax band (20%)||£12,701 – £50,270|
|Higher rate tax band (40%)||£50,271 – £150,000|
|Higher rate tax band (45%)||Above £150,000|
Scottish Tax Payers
The Scottish Government has different rates depending on your income:
|Starter Rate (19%)||£12,701 – £14,667|
|Basic Rate (20%)||£14,668 – £25,296|
|Intermediate Rate (21%)||£25,297 – £43,662|
|Higher Rate (41%)||£43,663 – £150,000|
|Top Rate (46%)||Above £150,000|
Example (2020/21): 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 (2020/21 – England, Wales and Northern Ireland): Tom earns £20,000 in his job. The first £12,750 is tax-free. The remaining £7,250 is taxed at the Basic Rate of 20% which means he will pay £1,450 tax.
Example 3 (2020/21 – Scotland): Emma earns £20,000 in her job. The first £12,700 is tax-free.
The starter rate (19%) is applied to the next £1,966 = £373.54
The basic rate (20% is applied to the remaining £5,332 = £1066.40
Total tax paid is £1,439.94
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.