How is my income tax calculated?

Income tax is calculated on your taxable pay, i.e. the amount left after your taxable allowances have been deducted from your earnings. HM Revenue and Customs allocates each person a tax code number, which is given to your employer.

This code number represents the amount of your taxable allowances. It enables employers, through the use of tax tables, to calculate your weekly or monthly income tax, which is then deducted from your pay and sent to HMRC. Tax is payable on taxable pay at different rates for different bands of taxable income. For 2017/18, these are:

  • a personal allowance of taxable income up to £11,500 for which the tax rate is zero (0%);
  • a basic rate of 20% for taxable income above your Personal Allowance, up to £45,000;
  • a higher rate of 40% for taxable income between £45,001 and £150,000; and
  • an additional rate of 45% for income over £150,000.

So for example, if your total wages in the 2017/18 tax year are £30,000, after the personal income tax allowance of £11,500 is deducted from your wages, you will pay £3,700 (i.e. £30,000 – £11,500= £18,500 @ 20%) income tax as a basic rate taxpayer.

If you'd like to get a picture of how much tax and National Insurance you're likely to pay on your salary, try our online Tax Calculator.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.