Back in 2006, before I jumped into my AAT, I used to think that if you earned over 50k, you would be taxed at 50% and to make matters worse I used to tell people this.
To try and correct this accidental misinformation I did in the past, decided to post a breakdown of how income tax actually works, I will be keeping this simple, this will exclude N.I, bonus’ etc.
Below is the tax band table for year for tax year ‘6 April 2022 to 5 April 2023’.
| Band | Taxable Income | Tax Rate |
| Personal Allowance | Up to £12,570 | 0% |
| Basic Rate | £12,571 to £50,270 | 20% |
| Higher Rate | £50,271 to £150,000 | 40% |
| Additional Rate | Over £150,000 | 45% |
- You can also see the rates and bands without the Personal Allowance. You do not get a Personal Allowance on taxable income over £125,140.
- Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000.
- Basically anything > 100k, just divide it by 2, that’s how much you will lose from your personal allowance.
| Band | Taxable Income | Tax Rate |
| Basic Rate | Up to £37,700 | 20% |
| Higher Rate | £37,701 to £150,000 | 40% |
| Additional Rate | Over £150,000 | 45% |
I have split out the calculations of income tax using the above tax bands, using several salaries as an example:
| Salary | 30,000 | 50,000 | 60,000 | 110,000 | 125,140 | 180,000 |
| T.I PA | 0 – 12,570 | 0 – 12,570 | 0 – 12,570 | |||
| PA 0% | 12,570 | 12,570 | 12,570 | 12,570 | ||
| T.I 20% | 12,571 – 50,270 | 12,571 – 50,270 | 12,571 – 50,270 | 12,571 – 50,270 | 12,571 – 50,270 | 12,571 – 50,270 |
| Income to tax | 17,430 | 37,430 | 37,700 | 37,700 | 37,700 | 37,700 |
| BR Tax 20% | 3,486 | 7,486 | 7,540 | 7,540 | 7,540 | 7,540 |
| T.I 40% | 50,271-150,000 | 50,271-150,000 | 50,271-150,000 | 50,271-150,000 | 50,271-150,000 | 50,271-150,000 |
| Income to tax | 9,730 | 64,730 | 87,440 | 112,300 (99,730 + 12,570) | ||
| HR Tax 40% | 3,892 | 25,892 | 34,976 | 44,920 | ||
| T.I 45% | >150,000 | >150,000 | >150,000 | >150,000 | >150,000 | >150,000 |
| Income to tax | 30,000 | |||||
| AR Tax 45% | 13,500 | |||||
| Total tax to pay | 3,486 | 7,486 | 11,432 | 33,432 | 42,516 | 65,960 |
| Take Home | 26,514 | 42,514 | 48,568 | 76,568 | 82,624 | 114,040 |
This table shows tax due as a percentage of income:
| Salary | 30,000 | 50,000 | 60,000 | 110,000 | 125,140 | 180,000 |
| Tax as a % of income | 11.62% | 14.97% | 19.05% | 30.39% | 33.98% | 36.64% |
Thoughts:
I was surprised to see income tax hover at circa <20% until you reach 6 figures, then it jumps up to around >30%.
I was also caught off guard at the tax rates once an income reaches 100k, I was expecting £0 – £50,270 to be taxed at 20% since you lose the personal allowance, not 40%.
Tax is complicated area but stripped down to a basic clean example, you can clearly see, the more you earn, the more tax you pay and this excludes mandatory N.I contributions.
I created a table of how it looks with N.I taken into consideration, I may do a separate post of how N.I is calculated.
| Salary | 30,000 | 50,000 | 60,000 | 110,000 | 125,140 | 180,000 |
| Tax | 3,486 | 7,486 | 11,432 | 33,432 | 42,516 | 65,960 |
| N.I.C | 2,092 | 4,492 | 4,719 | 5,719 | 6,021 | 7,119 |
| Total | 5,578 | 11,978 | 16,151 | 39,151 | 48,537 | 73,079 |
| Deductions as a % of income | 18.59% | 23.97% | 26.92% | 35.59% | 38.79% | 40.60% |
@Brainthrough
Links:
Estimate your Income Tax for the current year – GOV.UK (www.gov.uk)
The Salary Calculator – Take-Home tax calculator
National Insurance: introduction: How much you pay – GOV.UK (www.gov.uk)
National Insurance rates and categories: Contribution rates – GOV.UK (www.gov.uk)
Income Tax rates and Personal Allowances : Current rates and allowances – GOV.UK (www.gov.uk)
Income Tax rates and Personal Allowances : Income over £100,000 – GOV.UK (www.gov.uk)
Brainthrough 