Understanding income taxes and personal allowances can be painful. You may need clarification if you’re starting to do it for the first time. However, things become easier once you start keeping a tab of it.
The tax-free income you get each year is known as a personal allowance. Nonetheless, the personal allowance that you can access will depend on a wide range of factors.
The UK government follows a specific tax system. According to this tax system, personal allowance refers to the threshold above which income tax will be applied to the individual’s income. Any person receiving less than the personal allowance of the taxable income for a specific year will not have to pay the income tax.
If the amount is more, the taxes will be levied on whatever earning the individual has over the limit. The personal allowance is the amount an individual can earn before paying income tax.
As of the financial year 2022-23, the personal allowance for an individual is around £12,570. If the individual earns less than this amount, they will not have to pay any income tax. The personal allowance limit may be bigger, if the individual files for a blind person allowance or marriage allowance.
Similarly, it can be less if the individual earns a high amount or they have any tax that they owe from the previous years.
As of financial years 2021-22 and 2022-23, the standard personal tax allowance was £12,750. The tax amount the individual will pay completely depends on how much the individual earns in the particular tax year. The government sets a limit for which they charge taxes on the income.
Many individuals may have a certain complex tax bracket. These individuals will first need to understand the band they fall to make the right charges as the payment. Therefore, you may consider working with your accountant to resolve complex tax cases.
The standard personal tax allowance for the recent financial years has already been discussed. Any amount over the standard personal tax allowance will be considered taxable. You must be familiar with the band of the standard personal tax allowance. In the table below, you can find the taxable income and rate for the specific bands.
|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||More than £150,000+||45%|
If you are eligible for marriage allowance or are in a civil partnership, the personal allowance band will work slightly differently for you. It will also be different if you have age-related and income-related reasons. There are certain cases under which you will be eligible for the tax-free allowance. These include
While you are eligible for a certain personal allowance, you must also know how you will be getting it.
The procedure for getting the personal allowance is very easy. You must file a self-assessment tax return if you want your personal allowance. Once you submit the Self-assessment tax return, you will receive the tax-free personal allowance you are eligible for along with it.
In the UK, every tax bracket consists of a threshold. The tax threshold refers to the upper limit an individual is eligible for every year in a particular tax bracket. The tax threshold determines personal allowance, work income, or other resources. It may also include the interests that you may be earning on the savings account.
The tax threshold that needs to be paid is provided above. You will need to pay a specific percentage if your earnings are above the £12,750 amount.
The income tax band you fall into will also impact the amount of tax you must pay on the savings income. The personal savings allowance (PSA) ensures that people do not need to pay taxes on the interest they get from their savings accounts. If you have significant savings and earn more money, you will be liable for paying the tax charges.
According to the PSA, the basic rate taxpayers can earn around £1,000, which will be tax-free. On the other hand, the higher rate taxpayers will be eligible to receive around £500 in interest without paying the taxes. Any interest higher than your personal savings allowance will be taxed like the usual procedure. The income tax rate will be the same as the amount. Therefore, the basic rate for taxpayers will be 20%, whereas, for the higher taxpayers, the rate will be 40%. The taxpayers who have additional rates are not eligible to receive the PSA. Therefore, all the interest these individuals obtain on their savings will be taxed at 45%.
If you are based in Wales, the Income Tax rate that you will have to pay will be set by the Welsh Government. However, the Income Tax rate for people in Wales is the same as that of Northern Ireland and England. The amount is the same for the financial year 2022-23 and might change next year.
On the other hand, the Scottish Government decides the Income Tax rates if you are from Scotland. The income tax rate for the UK people and Scottish people is different.
If you file for personal allowance, you must submit your Self Assessment properly. You might as well work with personal tax accountant to help you with your personal allowance. Since you are eligible, you must calculate the income and expenses to file the tax return. You must file the personal allowance and self-assessment to HMRC itself. There are various online services to help you and make the process of filing easier and simple.
There are some instances under which you can claim Income Tax relief. However, you must meet the eligibility criteria to meet it. For the personal allowance, if you have a complex financial situation, you may be able to claim the Marriage Allowance, which will reduce your partner’s tax if you fall into the smaller bracket. It is advisable to file for the personal allowance in time to avoid penalties or missing out on receiving the amount.
Get the best advice on tax savings, accounting services, payroll, self assessment, VAT and more, whether you want to call us directly, request a call back or chat online with our experts, rest assured that we will always give you the best advice.If you have any questions, or would like to speak to us in person, please do get in touch. We're here to help.
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