Most people in the UK get a Personal Allowance. This means you can receive up to a certain amount of income each year, tax-free. Any income you receive after this amount will be taxed at a different rate, depending on how much it is — however, the allowance itself will remain untaxed.
Each year, the government decides what the Income Tax thresholds will be for the coming tax year. The Chancellor of the Exchequer then reveals them to the public in the annual Budget announcement every March.
You’ll usually be required to pay Income Tax if you receive income from employment, some state benefits, interest on savings above your Personal Savings Allowance, most pensions, renting out property, trusts and certain grants.
If you receive income from any of the above, you may be wondering what your Personal Tax Allowance for this year is. In this article, we’ll outline the tax thresholds for the tax year 2022/23, explain what other types of income deductions there are and advise on the tax allowance you may be entitled to.
The Personal Allowance for the tax year 2022/23 is £12,570, meaning most people can receive up to this amount without paying Income Tax on it.
In most of the UK, any income you receive above this amount will be charged at the 20 per cent basic rate, 40 per cent higher rate or 45 per cent additional rate, depending on how much it is.
Continue reading to find out more about how much Income Tax you might have to pay.
What are the UK tax thresholds for 2022/23?
The tables below give an indication of how much Income Tax you can expect to pay for the current tax year. Note that not everyone’s tax-free Personal Allowance will be the same, though. There are various factors that can affect it, such as whether you owe or are owed tax from a previous tax year, you’re entitled to any other allowances (which we’ll go into later), or you earn more than £100,000 per year.
If your income is more than £100,000 per year, your Personal Allowance starts to shrink and could be as little as zero, as it is reduced by £1 for every £2 of income.
Income Tax bands for England, Wales and Northern Ireland
|Tax band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,570||0%|
|Basic Rate||£12,571 and £50,270||20%|
|Higher Rate||£50,271 to £150,000||40%|
|Additional Rate||More than £150,000||45%|
Income Tax bands for Scotland
|Tax band||Taxable income||Tax rate|
|Personal Allowance||Up to £12,570||0%|
|Starter rate||£12,571 to £14,732||19%|
|Basic rate||£14,733 to £25,688||20%|
|Intermediate rate||£25,689 to £43,662||21%|
|Higher rate||£43,663 to £150,000||41%|
|Top rate||more than £150,000||46%|
How is Income Tax paid?
You’ll pay Income Tax differently, depending on whether you’re employed or self-employed.
You’ll pay Income Tax through Pay As You Earn (PAYE), which is a system that deducts it before your wages are paid to you.
You’re required to pay Income Tax yourself each year through Self-Assessment.
If you receive income from other sources, like self-employed people, you’ll need to file a Self-Assessment tax return each year. The deadline for the 2022/23 tax year (which ends on 5th April) will be 31st January 2024.
Why is Income Tax collected?
The government collects Income Tax via Her Majesty’s Revenue and Customs (HMRC) for the following reasons:
- To fund public services, such as the NHS, education and the welfare system
- To invest in public projects, like housing and roads
What other deductions are there on income?
National Insurance is the other main income deduction. If you’re aged 16 or over, and you earn or make a profit over a certain amount, it’s likely you’ll have to pay National Insurance contributions until you reach State Pension Age. The amount you have to pay depends on what kind of National Insurance you’re paying and, like Income Tax, it changes depending on what rate the government sets for each tax year.
For the 2022/23 tax year, the four main classes of National Insurance are:
Employees who earn more than £242 a week will have their National Insurance contributions automatically deducted by their employer. The rate is 13.25 per cent of earnings up to £967 per week, which reduces to 3.25 per cent on earnings above £967 per week.
The majority of self-employed people will pay National Insurance contributions through Self-Assessment. Self-employed people who make a profit of more than £6,725 a year have to pay a fixed amount of £3.15 per week. You don’t have to pay Class 2 National Insurance if your profits are less than £6,725.
Even if you’re not required to pay National Insurance, you can choose to make voluntary Class 3 contributions to fill or prevent gaps on your National Insurance record. You may wish to do this because having gaps could affect your entitlement to the State Pension, however, you’ll need to check your National Insurance record on the government website to see whether you’re eligible.
If you’re self-employed and you make a profit of £9,881 or more per year, you’re required to pay Class 4 National Insurance. The rate is 10.25 per cent on profits between £9,881 and £50,270 and 3.25 per cent on profits above £50,270.
Why do you have to pay National Insurance?
When you pay National Insurance, you’re building your entitlement to state benefits, including:
- NHS healthcare
- Statutory Sick Pay
- Maternity Allowance
- State Pension
Bear in mind, though, that to qualify for the State Pension, you’ll usually have to make National Insurance contributions for a certain number of years.
Capital Gains Tax
If you make a profit from selling something which has increased in value, you’ll be charged Capital Gains Tax (CGT) — but only if the asset is worth more than £6,000 (excluding cars, main homes and lottery winnings). This means it won’t apply to most people.
Each year, individuals have an annual exempt amount, meaning they can receive some gains without paying tax:
Capital Gains Tax bands for 2022/23
|Annual exempt amount||£12,300 for individuals|
|Standard Capital Gains Tax rate||18% on residential property, 10% on other assets|
|Higher Capital Gains Tax rate||28% on residential property, 20% on other assets|
If you receive income from dividends, you may have to pay tax on it. For the tax year 2022/23, you’ll pay Dividends Tax on any dividends income above £2,000 that is not held in a Stocks and Shares ISA (as dividends in this type of savings account are always tax-free).
The amount of tax you pay on dividends above the £2,000 allowance depends on your Income Tax band:
|Income Tax band||Tax rate on dividends above the allowance|
Are there any other Income Tax allowances?
In addition to the Personal Allowance, there’s the Blind Person’s Allowance, Marriage Allowance, Personal Savings Allowance and Trading Allowance:
Blind Person’s Allowance
If you’re eligible for the Blind Person’s Allowance, you can reduce your tax bill even further. You do not need to be entirely without sight to claim this allowance, and the amount doesn’t depend on your level of income, nor is it reduced if your income is over a certain amount.
For the tax year 2022/23, the Blind Person’s Allowance is £2,600 on top of the £12,570 Personal Allowance and you can transfer any unused allowance to your spouse or civil partner.
People who were born on or after 6th April 1935 and are married or in a civil partnership may be entitled to the Marriage Allowance. (It’s worth mentioning here that if one or both partners were born before 6th April 1935, they may be able to claim Married Couple’s Allowance instead.)
For the 2022/23 tax year, the Marriage Allowance is set at £1,260. This means that if one partner earns less than £12,570 and the other earns between £12,571 and £50,270 (£43,662 for people in Scotland), the lower earner can reduce their partner’s tax bill by transferring up to £1,260 of their Personal Allowance.
Personal Savings Allowance
With the Personal Savings Allowance, Basic Rate taxpayers can receive up to £1,000 in savings interest per year tax-free and Higher Rate taxpayers have a £500 tax-free allowance. Additional Rate taxpayers, however, are not entitled to a Personal Savings Allowance. Although the Income Tax bands are different in Scotland, the England, Wales and Northern Ireland bands are used for the Personal Savings Allowance for Scottish residents.
This allowance applies to interest earned from:
- Building society and bank accounts
- Credit union accounts
- Savings accounts
- Government and corporate bonds
- Other currencies, provided they’re held in UK-based savings accounts
The Trading Allowance applies to self-employed people, including those who provide casual services, such as babysitting and gardening.
With the Trading Allowance, you don’t have to pay tax on the first £1,000 you make, however, if you earn less than £1,000 a year, you can only claim the same amount as your gross income.
In the UK, the Personal Allowance for the tax year 2022/23 is £12,570, meaning most people can receive up to this amount without paying Income Tax on it. In England, Wales and Northern Ireland, any income you receive above this amount will be charged at the 20 per cent basic rate, 40 per cent higher rate or 45 per cent additional rate, depending on how much it is. In Scotland, an income of more than £15,570 will be charged at the 19 per cent Starter Rate, 20 per cent Basic Rate, 21 per cent Intermediate Rate, 41 per cent Higher Rate and 46 per cent Top Rate.
Other income deductions include National Insurance, Capital Gains Tax and Dividends Tax, however, you may be able to reduce your tax bill if you’re eligible for other allowances, such as the Blind Person’s Allowance, Marriage Allowance, Personal Savings Allowance and Trading Allowance — all of which can be used in addition to the Personal Allowance.