And Income Tax Allowance’s

In order for your employer to work out how much tax you have to pay each year the HMRC will give you a tax code, This will appear on your payslip and will be some numbers and a letter. Eg: 747L
This particular code means you are allowed to earn £7475 a year before you will be taxed.

Income Tax allowances table

Income Tax allowances	2010-11	2011-12	2012-13
Personal Allowance (1)	£6,475	£7,475	£8,105
Income limit for Personal Allowance	£100,000	£100,000	£100,000
Personal Allowance for people aged 65-74 (1)(2)	£9,490	£9,940	£10,500
Personal Allowance for people aged 75 and over (1)(2)	£9,640	£10,090	£10,660
Married Couple’s Allowance (born before 6th April 1935 and aged 75 and over) (2) (3)	£6,965	£7,295	£7,705
Income limit for age-related allowances	£22,900	£24,000	£25,400
Minimum amount of Married Couple’s Allowance	£2,670	£2,800	£2,960
Blind Person’s Allowance	£1,890	£1,980	£2,100

The table above shows the allowances for the respective categories, As you can see most peoples allowance will go up for the next tax year to £8105, meaning you will be able to earn approx £650 more before paying tax.

So if you only earn £8105 a year, you will not pay any tax next year, Hopefully you will earn more than that, and if so, you will be subject to tax on all earnings above that allowance. Below are the rates of tax you will pay on all earnings above your allowance.

Income Tax rates and taxable bands

Rate	2010-11	2011-12	2012-13
Starting rate for savings: 10%*	£0-£2,440	£0-£2,560	£0-£2,710
Basic rate: 20%	£0-£37,400	£0-£35,000	£0-£34,370
Higher rate: 40%	£37,401-£150,000	£35,001-£150,000	£34,371-£150,000
Additional rate: 50%	Over £150,000	Over £150,000	Over £150,000

To explain the above figures, if we stick with the single persons allowance of £8105, then in 2012/13, you will pay 20% tax on all earnings over £8105 and up to £34,371.

If you are lucky enough to earn more than £34,371 then you will pay 40% on all earnings up to £150,000.

And as you can see if your earnings are above £150,000, then you will pay 50% tax !!!!

calculating your HM tax

A quick calculation of the figures above can give you a good idea of how much tax you are likely to pay for any given salary.

For example

your salary is £20,000

your tax code is 810L

20,000 – 8105 = 11,895 (earnings you will be taxed on )

so for 2012 you will pay 20% tax on £11,895

Approx £ 2380 in tax for the year

National insurance contributions will also be approx £1400

your net annual income will be,

£ 20,000

-£2380 HM tax

-£1400 NI

Net total = £16,220 per annum (take home pay)

Hopefully enough to pay your bills for the year !

And maybe afford a few luxuries !!!