Earn £income in taxYearTitle and you’ll take home £afterTax | number_format(0) . This means £afterTax / 12 | number_format(0) in your pocket a month.
Over the year you’ll pay £incomeTax| number_format(0) income tax and £nationalTax | number_format(0) in National Insurance.
Income taxation in the UK is a complex system. The UK applies progressive income tax rates based on your gross salary and you may benefit from tax cuts and rebates.
What exactly is your take-home pay and which cuts are you entitled to?
Our income-tax calculator above and our ultimate guide on tax system in the UK will tell you everything you need to know and how to get the best value out of your gross salary. Let’s dive in!
Table of Contents
What do we mean by income-tax in the UK?
The income tax for employees in the UK is directly deducted from the payment slip according to the “PAYE” system (Pay As You Earn) which is also used in Ireland.
The income tax rate and system is quite similar to what is practiced in Western Europe with progressive tax rates going from 0% to 45% based on gross salary.
The employee must, upfront, communicate his current tax situation to his employer so that the system can apply the correct tax code and rate. The amount of income tax is then reversed to the ‘Her Majesty’s Revenue and Custom‘ department, also known as HMRC. The HMRC is the official agency entitled to collect taxes.
For the story, the income tax in the UK was first introduced by Prime Minister William Pitt in 1789 to finance England’s war against Napoleon.
What are the income tax rates in the UK?
UK residents will not have to pay any income tax up to £12,000 gross salary in 2019/2020. Then, a progressive tax rate applies depending on your level of salary:
|Gross salary||Income tax rates 2020/2021|
|Up to 11,850||0%|
|From £11,851 to £46,350||20%|
|From £46,350 to £150,000||40%|
How to calculate my take-home pay?
You will find below breakdown examples for the standard tax code 1250L.
|Gross salary by year||Taxable income by year||Tax by year||National Insurance by year||Home-Pay by year||Home-Pay by month|
What is the UK National Living Wage?
The minimum hourly gross wage has increased on 1st of April 2018 for all age ranges:
|National Living Wage for||Hourly gross rate as from 1st of April 2018|
|over 25 years old||£8.72|
|21 to 24 years old||£8.20|
|18 to 20 years old||£6.45|
|below 18 years old||£4.55|
To be entitled to National Minimum Wage you must be above 16. MNM applies to casual, part-time and temporary workers but not to self-employed people nor company’s directors.
What are the UX tax cuts and rebates?
The UK, as many other European countries, applies income tax allowances for elderly taxpayers.
|People entitles for tax cuts||Tax cut amounts per fiscal year|
|65 to 75 years old||£1,000|
|Beyond 75 years old||£1,200|
|For married couple one of whom is over 80||From £300 to £700|
The tax cut is reduced if the taxpayer in question earns more than £25,400 of income (-50% of the income part exceeding the tax threshold).
What can I take off my salary before income tax applies?
There are some professional fees and expenses that can be deducted from wages before tax apply. This is the case of:
- professional expenditures such as travel and accomodation expenses for business reasons, office supplies or clothes etc.
- donation to charities,
- alimonies asked by a judge.
The employers take off those expenditures from pay slips.
Who needs to pay the income-tax?
Tax residency is the criteria determining whether the tax payer is subject to income tax or not. It is automatically known when people:
- spend more than 183 days of the fiscal year on the UK territory; or
- work in a place full time; or
- established their principal residence.
Unlike France though, there is no fiscal household. Each taxpayer is taxed individually. However, married people or people in civil partnership benefit from an income tax discount.
Income-tax for non uk-resident workers?
As the UK practices a territorial system of taxation based, as mentioned above, on criteria of residency, non-resident workers expatriates will only be taxed on income either from British enterprises or other sources or repatriated to British soil.
On the other hand, british people domiciled in UK will have to pay taxes on any source of income whether it is earned in the UK or not.
What is the 2020/2021 PAYE tax code in the UK?
The standard default tax code used by most people having a job in the UK is 1250L.
L means that you are entitled to the standard tax-free Personal Allowance. The code can has suffix W1 for weekly pay or M1 for monthly pay.
It is always useful to double check your tax code on your HMRC account.
What is the fiscal year in the UK?
The fiscal year in the UK starts running from April, 6 of year N to April, 5 or year N+1.
The tax payer needs to establish his tax return form:
- either by paper through post before Octobre, 31 of year N+1; or
- online, before January, 31 of year N+2.
Do I need to declare my wages?
As the income-tax is directly taken from wages, you usually do not have to fill any tax declaration nor to pay taxes on your own.
- income tax return is strongly advises to taxpayers receiving money from multiple sources (for instance people with day and night different jobs or receiving foreign incomes);
- income tax return is mandatory for self-employed people.
How to calculate net salary?
‘How much tax will I pay?’ is the question most people ask themselves.
Use our net salary calculator above to know exactly what is the difference between your gross and net salary and what is the amount of income tax you must pay to the HMRC.
What are the taxes on dividends?
The taxation of dividends in the UK is also based on the criteria of residency. 10% of the dividends amount is taken at payment source.
The minimum hourly wage in the UK has increased to £7,83 / hour (gross amount) since the 1st of April 2018. The National Living Wage for over 25 people is therefore £930.
For a recent graduate leaving university, the average yearly gross salary is between £20,000 and £27,000 depending on qualifications and experience. After 20 years of professional experience, the average yearly gross wage is around £40,000.
The corporate tax rate in the UK is 20% for the time being but the government aims to reduce it to 17%.
The social charges rate applied is much lower in the UK: 13,8% for employers and 12% for employees against for instance 38% and 22% in France for same social prestations.