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Income Tax calculation guide

by Intuit Updated 7 months ago

Income Tax is the tax you must pay the government based on your yearly income. If you're self-employed, you'll also pay taxes on any profit your make, including online sales.

The amount you pay HM Revenue & Customs (HMRC) depends on two things: how much you earn and your Personal Allowance (you can find this listed in your tax code).

How is Income Tax calculated?

Income tax is made up of different tax bands set by the government. Your specific income tax is calculated based on the income tax band that you fall into.

Income tax is determined by your net profit, which is the amount left after deducting your total allowable expenses from your total income. You can find this information on your Self-Assessment Summary.

This table shows the income tax rates you pay, if you have a standard Personal Allowance.

Income tax bandTaxable incomeTax rate
Personal Allowance Up to £12,5700%
Basic rate£12,571 to £50,27020%
Higher rate£50,271 to £125,14040%
Additional rateOver £125,14045%

Example of Income Tax calculation

Note: This is a simplified explanation, so keep in mind that there might be other factors and things to consider based on your unique situation. It's always a good idea to chat with a tax professional or refer to the official HMRC guidelines for the most accurate and up-to-date information.

Suppose your taxable income is £24,000 and falls under the basic rate of 20%.

  1. Subtract your personal allowance (£12,570) from your net profit (£24,000). This gives you the amount of taxable income on which you need to pay tax.
  2. Calculate your tax liability by multiplying the taxable income (£11,430) by the tax rate (20%). In this case, your Income Tax would be £2,286.

How can I estimate my Income Tax for the tax year?

Use the HMRC online calculator to get an estimate of the amount you should pay for Income Tax and National Insurance for the tax year.

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