UK Income Tax Explained (UK Tax Bands & Calculating Tax)
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- Опубликовано: 5 окт 2024
- Are you in the UK and want to have your Income Tax Explained? Well in this video, that's exactly what we are going to do. Income Tax in the UK doesn't need to be so complicated, so let's get it explained.
So let’s start with a bit of housekeeping. All the rates and numbers I’m going through in this video are accurate at time of filming. You see the first thing you need to know is that instead of agreeing with the basic concept the romans came up with of when a year starts, HMRC begin their confusion by saying that a tax year runs from 6th April to the 5th April. Oh, and HMRC stands for Her Majesty’s Revenue and Customs by the way, they are in charge of collecting the tax. Think of them as the Queens debt collectors if you will.
So although the basic concepts discussed in this video will be the same, the rates can change from year to year as per the chancellors budget so make sure that you know the rates applicable for the year when you are watching this.
If you're in Scotland, your income tax rates are different too!
How much income tax you pay in each tax year depends on how much of your income is above the personal allowance and how much of your income falls within each tax band. We’ll run through some examples in a minute.
The personal allowance is the amount of money you are allowed to earn before you have to pay tax. Currently, it’s £12,500. So if you earn less than this, you keep it all.
Next is the basic rate band. This is all income over the £12,500 personal allowance and under £50,000. You’ll pay 20% on any income that falls in this band. So for every £100 in this band, you'll pay £20.
Next is the higher rate band. If you earn over £50,000, you’ll pay 40% on this portion of your income until you get to £150,000. So for every £100 in this band, you’re going to lose £40 in tax.
If you earn over £150,000 you’ll pay additional Rate tax of 45% on any amounts over this. For every £100 in here, you’re going to give up £45.
One of the common misconceptions people often have is ‘there is no point me earning more money because I’ll just pay more and more tax and won’t see any of it.’ Not true.
The Personal Allowance goes down by £1 for every £2 of income above £100,000 and it can go down to zero. So if you earn more than £125,000 you actually lose your personal allowance entirely.
There are some great online calculators that will do all the heavy lifting for you. One that I like is THE SALARY CALCULATOR www.thesalaryc... as you can get full breakdown’s of the calculations if you need.
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Hi there! My name is Tom Morgan, Founder & Financial Planner of Orca Wealth Ltd, welcome to my RUclips channel ‘That Finance Show’. I’m very glad to have you here because this channel gives me the opportunity to help people and share information with those who wouldn’t normally get it.
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When investing remember, your capital is at risk. Investments can fall and rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may be subject to change. This channel is for information and entertainment only. The information provided by Tom and That Finance Show is not intended to address your particular requirements and should not be construed as advice. Neither Tom or ‘That Finance Show’ will not be held responsible for any actions you take as a result of watching these videos.
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Two things: The Queen was not harmed in the making of this video. Yes, I know I put too much milk in my tea.
Hi, do you have a video how ISA and Pension Scheme affects Income tax?
She’s deed now
@@michaelelder1043 I didn’t kill her to be clear!
i just learned how to calculate tax in less than 10mins because of you.. i have been struggling for months...thank you
That’s amazing Chinedu! I’m so glad it helped.
I’m struggling to see why I have to pay tax though, Education in the country is shit, housing is shit, the roads are shit, Trainline is shit. Everything the tax money goes towards is just shit
Oh and the NHS is also shit
Trains are not state owned.
@@ADAM00717 they’re still shit regardless
@@ADAM00717they should be
So in other words try and get your employer to pay you £12,500 a year and the rest is cash in hand.
That website at the end was a god emperor recommendation, thank you!
How did you get to the number 37,500£? When 60k-12,500£ is 47,500£?where did the remaining 10k on the 60k salary come from ?
Brilliant video! The sublte uses of witty humour and clear use of examples makes it more interesting and successful to learn
So glad it helped thanks for watching
Thank you so much for breaking it down into a way it was easier to understand
This is very useful information! It was explained very clearly. Thank you!
Thank you! 😃
Nice and clear thx!
Can you explain if i get pay rise from £17.5/h to 18, why my weekly wages only go £3.5 higher after tax, and £35 higher before tax? I am done 48 hours in a week, so this is not adding up. Thx
Hypothetical questions. Say someone is on a 45k basic. But then earns 1k commission for 9 months of the year. Does the 40% happen on month one when commission is earnt. Does Hmrc see this comms as every month and then you get a rebate? Trying to work this out so I can pay more into pension to take me below the 40% (on the amount over £50,000***. Sorry for the long question. Thanks!
Great video! Would be nice to see a similar video on how extra jobs change things, and more about capital gains tax :)
Thanks Ben, hope to do some more tax content soon! Thanks for watching and commenting.
Thanks for the video! 6:24 Just wondering, for people earning £60,000, isn't it 20% on £37,500 (£12,571 to £50,270 instead of £50,000 - £12,500) (Basic Rate = £7,500)? Thank you in advance!
I want to be notified when you get the answer
Very clear explanation! Thank you!!
Thank you Mikee! Appreciate that. Glad the terrible dad jokes and dodgy analogies didn’t get in the way.
Wait you say when you receive 200.000 you'll lost your personal allowance that is 12.500, but after you say that on higher rate taxes will cut a 45.000 on your 112.500, but again you said that the higher rate is from 50.000 to 150.000 if you do 150.000 - 50.000 you get 100.000 then you do 100.000 * 40% that should be 40.000 tax not 45.000 I don't get it why you took 112.500 and not 100.000 did you add the personal allowance to higher rate ? I thought only 100.000 of the 150.000 are taxed with 40% rate and never more how you've got that extra 12.500 pounds on the higher rate please explain ?
I get paid weekly and, with overtime, I will be creeping over the £50000 barrier on week 49. What will I pay in the remaining weeks? Will it affect how much tax I pay the following year?
Hi Peter, sounds like you’re about to enter the 40% bracket so you’ll pay tax at 40% on anything over the threshold.
Thanks for sharing about music as it was interesting.
Hope it helped and thanks for watching!
brilliant video really clear to understand thank you
Could you explain where students lie and any advice, thanks a bunch video helped a lot.
Hi Bilal thank you, glad it helped, what about students do you need to know?
I'm here in the philippines, someone want to send money for me from UK.. May I ask, should I pay any tax?
Im new to all this so with fresh eyes ...i have to ask WHY was a system that could be fair ( uses a %) and therefore more you earn more you pay in a proportional fair way made into an UNFAIR one with tax bands. I mean think about it! An 80k salary becomes a 56K one thats patently NOT fair. Am i missing something?
Less jokes more straight to the point info, I had to force myself to watch all this.
Oh you poor thing, forced to watch! Was someone holding you in your chair with matchsticks under your eyelids? My thoughts with you at this difficult time.
@@ThatFinanceShow That's a boys response to criticism.
No wonder you haven't even got 2k subs after 11 month's.
Grow up dude, good luck.
@@GrimJRS I have no issue with well thought through constructive criticism, I’m always trying to improve. But to come here and tell me you had to force yourself to watch is not constructive. I’m putting content out here at my time and expense, free information to help people so for you to stumble by and have a pop is bizarre and unnecessary.
@@ThatFinanceShow Did have to force myself.
No jokes.
No clips.
No 5 seconds long cutscenes between info.
No one comes to a financial channel for comedy.
There's your criticism.
@@GrimJRS eh.. I found it very beneficial! I find the comedy makes the content easier to absorb. So speak for yourself
Great video i found it great to watch and im on apple music looking for additional rates new album Tax Tax Tax
Hahahahaha!!!
Thanks for the information! it's very clear and easy to understand. the calculator website is useful, i like it a lot! But may I ask how can I apply the tax refund?
Glad you found it helpful. What tax refund do you mean?
Thank you, well explained
Does your tax calculator have a section for adding benefits like PIP & Pension credit?
Nicely explained, enjoyed the video
Thanks Neil, appreciate the comment.
succinctly explained!
Tom, what is the best way to maximise your earnings with taxes?
Hi not too sure I fully understand the question?
@@ThatFinanceShow How do I explain, as income increases the tax also increases. Is it better to have high income job or having a business (is the tax lower owing a business) or owing few properties and renting them out? Which option out there has the best bang for its buck.
@@sport231 as your income increases you pay more tax overall but you’re always better of earning more money because of how the bands work. There are opportunities to pay lower tax through a Ltd company business structure but you have to pay corporation tax on profits too. All in all, working for yourself usually has better tax planning opportunities than being employed.
@@ThatFinanceShow Thanks Tom, so does that mesn being self employed is better than being employed, what are tax planning opportunities and which careers is the best to get into in terms of working for yourself? Sorry for so many questions.
Great video on taxes bro , a topic not enough people have a good grasp on and really like your video style too! New like & sub 👏🏾👍🏾
Thanks dude! Appreciate that.
Great video mate! Liked and subbed 👍
Thanks a lot!
Nicely done mate!
Thanks a lot!
Awesome video tom!
I loved the Elizabeth jokes
They haven’t aged very well now she’s died 🫣🫣🫣
thank you, this was very funny and it helped a great deal
Glad it helped!
so, do I subtract the personal allowance first before checking which bracket I'm in?
If you earn £200,000 . As you explained there are no personal allowances yet you only tax £37,000 @ 20 percent. Yet the first applicable bracket would be £50,270 ?
Shouldn’t it be 20 percent on the £50,270 ?
Unfortunately it doesn't work like that. You are still taxed at 20% on 37,700 and then you are taxed on 40% on the abatement of the personal allowance
@@SirPeregrinTookSo that first 12500 is taxed at 40%? I don't really understand where he got the £112, 500 figure from
@aims__8785 I think it is easier if you think of it as the £12,500 tax free allowance is being taken away from you because the person has a good income.
The abatement of the personal allowance works by reducing your personal allowance by £1 for every £2 you earn over £100,000. So once you reach £125,000 (using rounded figures), you lose your personal altogether.
Therefore, you're still taxed at 20% on £37,500, the next £112,500 is taxed at 40% (which is equals £150,00 total) and so the next £50,000 is taxed at 45%.
The tax rules have changed now. The additional rate I.e. 45% is now on earnings over £125,000.
Please note I am just using rounded figures for ease.
@SirPeregrinTook Ohh so this vid is outdated. That must be why I was confused. I was comparing the maths in this video with the current tax brackets
Are there any other taxes to look out for or is it just Income tax you will have to pay within the UK?
What a minute, do different rules not apply to people who live in scotland??
Nice! Great video and content
Hi thanks Joyce, really appreciate the comment 🙏🏻
Say you get your salary from an employer who already deducts PAYE and then you earn interest form a savings account too, do you pay the savings interest seprately or do you add it to the income earned from your salary and then pay tax for that full amount?
Why wouldnt you put tax and Ni in the same video. Its essentially the same thing
That was great. Loved the band reference explanation and props for the Reel Big Fish bit, but that mug of tea... 😐
Thanks! I know I know, look I was under pressure trying to make it and film it and it all got too much!
Thanks brother, very useful for people moving to UK. So your statement at 06:57 is not correct. People earning over 200k might definitely be watching these videos.😅
Hello my contract is 37 hours per week but I wanted to 40 hours overtime every week how much tax gonna be please anyone help me my pay rate 10.19
Hi there, so the total income you receive (normal salary + overtime) will all be taxed according to those tiers discussed in the video. The amount you earn in overtime will sit on top of your normal income (so added on top) and it will all be taxed according to which bands they fall into. You'll pay nothing on the amount within your personal allowance, 20% on the basic rate tax band and if the total figure pushes you into the higher rate tax band you'll pay 40% on this portion. Hope that helps.
Examples are all good but might have been useful to just show the brackets in plain numbers before diving into scenarios. Good video though cheers..!!!
Thanks for the tips!
Do you offer financial advice? on a personal level?
Hi Tracey, yes I do. Feel free to drop me an email thatfinanceshow@gmail.com
Hi, please I have a question, I got my first job in the uk in July and I wasn’t taxed for the first 3 months, but got taxed this month of October, what does this imply? Was I supposed to be taxed yet?
good question
Could someone explain one thing for me please? Why is it when I check my payslips from the beginning of the financial year (those within the personal tax allowance) do I see tax deductions?
Because it’s averaged out over the year, so in January you get 1/12 of your personal allowance.
Can someone explain to me the last example please?
What do you need explaining?
Thats why we all came here😂 daaaamn guys daaamn
is it £37,500 or £47,500? I did £60,000 - a personal allowance of £12,500 and got £47,000. I'm not good at maths and I'm trying to do an assignment where I calculate tax, is there a written formula I can use?
Its 37500 because we are deducting 12500 from the first band which is 50000
50000-12500 =37500
But I don't know what he did with the 200k one, where did the 112500 come from ? I'm not that good with maths either btw 😆
Dear Sir,
If you do not mind, I would like to ask for information regarding the tax refund when leaving the UK. To be more precise, how much tax would I be entitled to claim in the event I worked full time for four months in this tax year and decided to leave the UK in march 2023. The total payment on P45 is £9657,06 and my income tax is £957,40.
Thank you
What do you do bro 😮
Do people under 21 not pay tax
They do yes
I wish we learnt this in school 😂😂😂😂
You and me both!!
Good video thanks! I managed to take a massive hit this past tax return, all I ever thought was "20%... 20%" not taking into account national insurance and my student loan 😕😭
Taxes and death, the only 2 things we can be sure of eh! 😂
@@ThatFinanceShow indeed! I wanted death when I saw how badly I miscalculated my tax 🤣
*His Royal
Skip to 2:40 for the actual start of the video
Tyrique Shoals
So high the tax payments in Uk
Thanks for watching!
Should've studied accountancy. Oh wait, my mathematical skills aren't up to par
That’s what calculators are for !!
And Excel!
Habibi, come to Dubai
One thing that really annoys me about having to pay tax is how some of that money goes into things that are just going to cause me problems.
For example, all of the roadworks in the country are paid for with the money of British taxpayers and yet roadworks cause a lot of problems for people.
In what sense does it make having to pay for something that makes your life more difficult?
just get to the point
UK. IS A CORPORATION.
DO YOU LIVE IN A CORP.....S
Just tell us, stop trying to be funny
Due to the unecessary blasphemy on the video I will not subscribe to your channel
Thanks for watching anyway Michelle!
@@ThatFinanceShow your welcome, God bless you 🙏
You are not funny bro
I agree