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Your Personal Tax Allowance Explained

Your Personal Tax Allowance Explained

Personal Tax Allowance refers to the amount of money everyone is allowed to earn each tax year before they start paying Income Tax on it. Everyone is entitled to Personal Allowance – including students.

An allowance is an amount of otherwise taxable income that you can earn each year without paying tax on it. Read on to learn more about your personal tax allowance, including the different rules and regulations and the different tax codes.

How Much Is the Personal Allowance?

For the 2022/23 tax year the Personal Allowance that you can earn is £12,570. This means that if you earn less than this you will not have to pay income tax.

This Personal Allowance tax might be bigger if you claim Marriage Allowance or Blind Person’s Allowance, it also can be smaller if you’re a high earner or if you owe tax from a previous year.

Different Tax Codes

A tax code personal to you – is a combination of numbers and letters to show HMRC how much income you should be paying.

A tax code shows the amount of tax-free income an employee can receive in a single tax year. Your tax code shows the amount of tax-free income an employee can receive in a single tax year, which is also known as a Personal Allowance. You are entitled to this tax-free allowance. There are a number of different tax codes you can be on, with some being more common than others.

Income Tax

Income Tax is charged on most types of income, most commonly from your wage or salary from your place of work but it can also be taken from profits if you run a business, interest and dividends from savings and investments and rent if you are a landlord.

You don’t usually pay Income Tax on all your taxable income. This is because most people qualify for one or more allowances. How much Income Tax you pay in each tax year depends on a couple of factors including how much of your income is above your Personal Allowance and how much of your income falls within each tax band.

What Does Income Tax Get Used For?

Collected by HMRC on behalf of the government, it is used to help provide funding for public services – this includes the NHS, education, the welfare system as well as public projects like roads, rail and housing.

How Much Income Tax Will I Pay?

Income tax is made up of different bands and this means that as your income increases so does the amount of income tax you pay.

  • Up to £12,570 = 0%
  • Between £12,571 and £50,270 = 20%
  • Between £50,271 and £150,000 = 40%
  • Over £150,000 = 45%

Different Rules for Wales and Scotland

If you live in Wales or Scotland then the Income Tax rates are set by the Welsh and Scottish Governments. At the moment the Welsh rates are currently the same as for England and Northern Ireland for the year 2022/23.

National Insurance

National Insurance is a fundamental contribution to the welfare state in the UK. If you are over the age of 16 then it is mandatory to pay a National Insurance contribution, everyone pays this contribution to help them qualify for certain benefits and the State Pension.

To qualify to pay for National Insurance you have to:

  • Be 16 years old and over
  • Be an employee earning over £190 a week
  • If self-employed be making more than £6,725 in profits each year

You may want to pay voluntary National Insurance to avoid gaps in your record if you do not pay your National Insurance contribution. If you have gaps in your paying history then you may not get the full state pension when you come to retire. You can create gaps by:

  • Being employed but having low earnings
  • Being unemployed and not claiming benefits
  • Being self-employed but not paying a contribution due to small profits
  • Living or working outside the UK

How We Can Help

If you need any help or advice about your Personal Tax or any accounting matter, at LJS we will always welcome the chance to help – call us for a free consultation today.

Have You Got Any Questions?

Need to talk to someone? Get in touch with one of our consultants today and we will be happy to help.
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