HM Tax codes and thresholds
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.
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
|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.
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,
-£2380 HM tax
Net total = £16,220 per annum (take home pay)
Hopefully enough to pay your bills for the year !
And maybe afford a few luxuries !!!