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How to calculate Income Tax - UK Tax Year 2018 / 2019

The following guide outlines what Income Tax is, who has to pay income Tax and what income is exempt.  This Income tax article also provides an example of how to calculate your Income Tax (PAYE) deductions based on your Gross Pay for the Tax Year but, if you prefer, you can use our 2018 / 2019 Income Tax calculator which does all the calculations for you

Who has to Pay Income Tax in the UK?

Who has to pay tax? is probably the second most common question we ask, right after Why do I have to pay Tax?. The reality is that none of us like paying tax and most have difficulty accepting the levels of Tax they pay.

If you work in the UK, the bottom line is that you are most likely legally obliged to pay Income Tax, you will also be expected to pay National Insurance.. Its worth reading this useful article on how to reduce the amount of income tax and National Insurance you pay.

Income Tax is, unsurprisingly, a tax which is directly related to your income. The idea being that the more you earn, the more you pay. The Income Tax rates for 2018 / 2019 can be found further down this page along with details on income tax allowances. Income tax is a stepped rate (logarithmic) which ranges from 0% of income to 45% with those on a higher income having more of their income subtracted.

Income Tax - a fair tax system?

Income Tax - Image Courtesy of Contrctors Umbrella Company - http://www.contractorsumbrellacompany.com/The stepped income tax rate is a contentious issue with the large step between rates often resulting in those who earn a specific amount 'losing out' by just creeping into a certain band. There have been various government income tax initiatives over the years to address this but the stepped approach is still in place. Other options considered include a linear rate (rising steadily dependent on income) and a flat rate so that everyone pays the same rate regardless of what they earn. Income tax policies will always be contentious as the interpretation of the word Fair is very subjective with opinion based typically on how much you are earning. Lower earners think the higher earners should pay, higher earners feel they are unjustly underpinning the economy. The arguments are well documented with the super rich increasingly targeted in 2012/2013 for tax avoidance. Authors opinion? My preference is for a flat rate, its a fairer system and will attract higher earners and business into the UK. We are a service economy now with very little manufacturing, we need to attract businesses whose employees would benefit from lower taxes and subsequently spend their money in the UK, create a little cash flow and blah, blah blah. You comments are welcome at the bottom of this article.

What is included in Income Tax calculations in 2018 / 2019

Impartially... pretty much all your income above a certain level will be subject to Income Tax. Specifically, Income Tax is payable on:

  • Your earnings as an Employee
  • Your earning from Self Employment
  • Your income from your pension (including State Pension, Personal Pension and Company Pensions).
  • Income from the interest generated from your savings or from shares.
  • Income from rental of a property
  • Income from a Trust Fund

Who is exempt from Income Tax in the UK?

You will be glad to here that not all of your income is taxable and all those within the UK who have to pay income tax have personal tax allowances. Income Tax exceptions include:

  • State benefits - including:
    • Disability Living Allowance
    • Attendance Allowance
    • Lump sum Bereavement Payments
    • Pension Credit
    • Free TV license for over 75s
    • Winter Fuel Payments and Christmas Bonus
    • Housing Benefit
    • Employment and Support Allowance - income based (if you haven't paid enough National Insurance contributions)
    • Income Support - certain payments
    • Child Benefit
    • Guardian's Allowance
    • Maternity Allowance
    • Industrial Injuries Benefit
    • Severe Disablement Allowance
    • War Widow's Pension
    • Young Person's Bridging Allowance
  • Interest on savings
    • All ISAs.
    • Savings Certificates.
  • Rents
  • Tax Credits
    • Working Tax Credit.
    • Child Tax Credit.
  • Premium Bonds
    • Wins from Premium Bonds are free from UK Income Tax and Capital Gains Tax.

What is my Personal Allowance?

Income Tax Personal allowance calculation exampleIn income Tax terms, your Personal Allowance is the amount you can earn before Tax rates apply. It is not a sum of funds that you will be paid. The truth is that this should be called a Tax Free Earnings Threshold or similar, Personal Allowance is somewhat misleading. AS an example, if you Earned £20,000 Per year Gross Salary and your personal allowance was £8105 then the amount of income you would be taxable on would be £11985.

 As set out at Budget 2011, once the personal allowance has reached £10,000 (2014/15 Tax Year), the personal allowance will increase by Consumer Prices Index (CPI) in future years, starting from 2015-16.

So, Gross Income minus Personal Allowance equals Taxable Income

How to Calculate Income Tax in the UK

Before beginning your Income Tax calculator, remember you can use our 2018 / 2019 Income Tax calculator which does all the calculations for you, your choice.

First, decide on the tax year you are planning to build the calculator for.  The tables below provide general Allowances for the Tax Years between 1999 and 2018.

Once you have decided which Tax Year you are calculating your Tax for, you can they work our your Personal Allowances. Personal allowances are specific to your situation and are basically tax free sums that are deducted from your Gross pay before applying Tax rates.

 

Income Tax Notes:

Tax year 2012/2013 Personal Allowance is cancelled as a standard allowance and replaced by a Personal allowance available for people born after 5 April 1948 at an annual rate of £9440. This is effectively the same allowance etric, simply split into age groups, assumingly for simplification in future Tax Years.

Income Tax Rates 1999 - 2004

Allowances1999 / 20002000 / 2001 2001 / 20022002 / 20032003 / 2004
Personal allowance 4,335 4,385 4,535 4,615 4,615
Income limit for Personal Allowance n/a n/a n/a n/a n/a
Personal allowance aged 65 to 74 5,720 5,790 5,950 6,100 6,610
Personal allowance aged 75 and over5,9806,0506,2606,3706,720
Married couple's allowance aged 75 and over 5,1955,255 5,4355,535 5,635
Income limit for age-related allowances 16,800 17,000 17,600 17,900 18,300
Minimum amount of married couple's allowance n/a n/a n/a 2,110 2,150
Blind person's allowance 1,380 1,400 1,450 1,480 1,510
Income Tax Rates1999 / 20002000 / 2001 2001 / 20022002 / 20032003 / 2004
Starting Rate %
(Starting Threshold)
10% (0) 10% (0) 10% (0) 10% (0) 10% (0) 
Basic Rate %
(Starting Threshold)
23% (1,500) 22% (1,520) 22% (1,880) 22% (1,920) 22% (1,960)
Higher Rate %
(Starting Threshold)
40% (28,000) 40% (28,400) 40% (29,400) 40% (29,900) 40% (30,500)
Additional Rate %
(Starting Threshold)
n/an/a n/an/an/a

Income Tax Rates 2004 - 2009

Allowances2004 / 2005 2005 / 20062006 / 20072007 / 2008 2008 / 2009
Personal allowance4,7454,8955,0355,2256,035
Income limit for Personal Allowance n/a n/an/a n/an/a
Personal allowance aged 65 to 74 6,8307,090 7,2807,550 9,030
Personal allowance aged 75 and over6,9507,2207,4207,690 9,180
Married couple's allowance aged 75 and over 5,795 5,9756,1356,365 6,625
Income limit for age-related allowances 18,900 19,50020,100 20,90021,800
Minimum amount of married couple's allowance 2,150 2,2802,350 2,4402,540
Blind person's allowance1,5601,6101,6601,7301,800
Income Tax Rates2004 / 2005 2005 / 20062006 / 20072007 / 2008 2008 / 2009
Starting Rate %
(Starting Threshold)
10% (0) 10% (0) 10% (0) 10% (0) Abolished
Basic Rate %
(Starting Threshold)
22% (2,020) 22% (2,090) 22% (2,150) 22% (2,230) 20% (0)
Higher Rate %
(Starting Threshold)
40% (31,400) 40% (32,400) 40% (33,300) 40% (34,600) 40% (34,800)
Additional Rate %
(Starting Threshold)
n/an/a n/an/an/a

Income Tax Rates 2009 - 2014

Allowances2009 / 2010 2010 / 20112011 / 20122012 / 2013 2013 / 2014
Personal allowance6,4756,4757,475 8,105N/A
Personal allowance for people born after 5 April 1948--- -9440
Personal Allowance for people born between 6 April 1938 and 5 April 1948  --- -10,500
Personal Allowance for people before 6 April 1938 --- -10,660
Income limit for Personal Allowance n/a100,000 100,000 100,000 100,000
Personal allowance aged 65 to 74 9,490 9,4909,49010,500N/A
Personal allowance aged 75 and over9,6409,64010,090 10,660N/A
Married couple's allowance aged 75 and over 6,965 6,9657,295 7,7057,915
Income limit for age-related allowances 22,90022,900 24,000 25,400 N/A
Income limit for the allowances for those born before 6 April 1948 --- -26,100
Minimum amount of married couple's allowance 2,6702,670 2,800 2,960 3,040
Blind person's allowance1,8901,8901,980 2,1002,160
Income Tax Rates2009 / 2010 2010 / 20112011 / 20122012 / 2013 2013 / 2014
Starting Rate %
(Starting Threshold)
Abolished  ----
Basic Rate %
(Starting Threshold)
20% (0) 20% (0) 20% (0)20% (0)20% (0)
Higher Rate %
(Starting Threshold)
40% (37,400) 40% (37,400) 40% (35,000)40% (34,370)40% (32,010)
Additional Rate %
(Starting Threshold)
n/a50% (43,875)50% (42,475)50% (42,475)45% (41,450)

Income Tax Rates 2014 - 2019

Allowances2014 / 20152015 / 20162016 / 20172017 / 20182018 / 2019
Personal allowanceN/A     
Personal allowance for people born after 5 April 194810,000      
Personal Allowance for people born between 6 April 1938 and 5 April 1948  10,500      
Personal Allowance for people before 6 April 1938 10,660      
Income limit for Personal Allowance 100,000       
Personal allowance aged 65 to 74 N/A     
Personal allowance aged 75 and over N/A     
Married couple's allowance aged 75 and over 8,165      
Income limit for age-related allowances N/A       
Income limit for the allowances for those born before 6 April 1948 27,000     
Minimum amount of married couple's allowance 3,140       
Blind person's allowance2,230      
Income Tax Rates2009 / 2010 2010 / 20112011 / 20122012 / 2013 2013 / 2014
Starting Rate %
(Starting Threshold)
- ----
Basic Rate %
(Starting Threshold)
20% (0)      
Higher Rate %
(Starting Threshold)
40% (31,865)      
Additional Rate %
(Starting Threshold)
45% (41,865)     
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