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Tax and National Insurance
Tax needn’t be taxing!
Understand your tax and national insurance obligations as an employee in England, Wales, and Northern Ireland. Learn about tax bands and national insurance thresholds, rates and tax-free allowances. Scotland has different tax bands and tax rates, which you can find at the bottom of this page. Tax and national insurance are calculated differently for self-employed individuals, find out more by clicking below:
Tax or PAYE – pay as you earn
The tax system in England, Wales and Northern Ireland consists of 3 marginal tax bands. The basic rate tax band of 20% is payable on income up to £50,270. If your income falls within the basic rate tax band you pay tax at 20% on income above the personal tax allowance of £12,570, and up to the tax band threshold of £50,270. The first £12,570 of income falling within the personal tax-free allowance is taxed at 0%. You’ll pay tax of 20% on the next £37,700 (£50,270 – £12,570). Income over £50,270, falling in the higher rate tax band is taxable at 40%. Income over £125,140, which falls within the additional rate band, is taxable at 45%. The tax year runs from 6th April to 5th April of the following year.
| Tax 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 £125,140 | 40% |
| Additional Rate | Over £125,140 | 45% |
Tax Allowances
Various tax allowances allow individuals to earn a certain amount of income tax-free. The main allowances that you need to be aware of are:
- Personal allowance – Individuals can earn up to £12,570 tax-free per annum.
- Personal savings allowance (PSA) – £1,000 annual interest on savings is tax-free for basic rate taxpayers. Higher rate taxpayers have an allowance of £500.
- Dividend allowance – Individuals can earn £1,000 dividend income annually tax-free, which is reducing to £500 from April 2024.
If interest income pushes you into a higher tax bracket when added to your other income, you will lose part of the savings allowance. The dividend allowance is fully available regardless of your total income. The personal allowance reduces when your adjusted net income exceeds £100,000 by £1 for every £2 earned over £100,000. You lose the personal allowance once your income exceeds £125,140.
Tax on employment income
To illustrate tax on employment income, on an annual salary of £25,000, you will pay 20% tax on £12,430 (£25,000 – £12,570 personal allowance). This equates to annual tax of £2,486 or £207 per month.
Income above £50,270 is taxed at the higher rate of 40%. On a salary of £60,000, the first £12,570 is tax-free, and the next £37,700 (£50,270 minus £12,570) is taxed at 20%. The remaining £9,730 which falls in the higher rate tax band (£60,000 minus £50,270) is taxed at 40%.
The following example illustrates tax on an annual salary of £60,000:
| Salary of £60,000 | Amount | Tax % | Tax |
|---|---|---|---|
| Personal allowance of £12,570 | 12,570 | 0% | 0.00 |
| Earnings between £12,570 and £50,270 | 37,700 | 20% | 7,540 |
| Earnings between £50,270 and £125,140 | 9,730 | 40% | 3,892 |
| Total | 60,000 | 11,432 |
National insurance on employment income
Employees with category letter A pay national insurance of 8% on earnings from 6th April 2024. Apprentices under the age of 25 have a national insurance category of H and employees under 21 years letter M.
National insurance is due on earnings over the primary monthly threshold of £1,048. On an annual salary of £25,000, national insurance is £83 a month and is calculated as follows:
From the monthly pay of £2,083, deduct the monthly NI exempt threshold of £1,048. Multiply the remaining amount of £1,035 by 8% which is £83.
Higher National Insurance threshold example
On an annual salary of £60,000, or £5,000 per month, national insurance is £330 a month. This is slightly more complicated to calculate, as there are two earnings thresholds to consider in this calculation.
The monthly pay of £5,000 exceeds the upper secondary NI threshold rate of £4,189 by £811. Earnings above the upper secondary threshold pay national insurance at 2%. NI of 2% is due on £811 (£5,000 – £4,189) which is £16. To calculate the amount of the salary that pays NI at 8%, deduct the primary threshold or exempt earnings of £1,048 from the upper secondary threshold of £4,189. This is £3,141 and 8% of this is £251. Add both amounts of £251 and £16 to get the total NI due, which is £267. The upper secondary threshold is an annual equivalent of £50,270. Income above £50,270 pays NI at 2%.
The table below illustrates the National insurance calculations on a salary of £60,000 and a salary of £25,000:
| Threshold | Threshold range | Amount | NI at 8% | NI at 2% | Total |
|---|---|---|---|---|---|
| Primary | £1,048 – £4,189 | £3,141 | £251.28 | £314.10 | |
| Secondary | Above £4,189 | £811 | £16.22 | £16.22 | |
| Total | £251.28 | £16.22 | £267.50 |
| Threshold | Threshold range | Amount | NI at 8% |
|---|---|---|---|
| Primary | £1,048 – £4,189 | £1,035 | £82.80 |
HMRC Personal Tax Account
You can register for a personal tax account on HMRC’s website, which allows you to do various tasks, such as checking your tax code, claiming a tax refund, updating your details, finding your national insurance number, etc. It is straightforward to set up and you will need an email address, mobile number, and two forms of identification. You can also set up a business account at the same time. You will need a business account if you are self-employed, in business, need to register for self-assessment, and other taxes, such as VAT.
The link to HMRC to set up a personal account is:
Personal tax account: sign in or set up – GOV.UK (www.gov.uk)
National Insurance Number
You should receive a national insurance number in the post around your sixteenth birthday. If you do not receive a NI number, you can apply for one on the HMRC website. The link is:
Some websites offer services for obtaining a national insurance number or tax rebates, but they will often charge for the service. You DO NOT need to use such sites as it is easy to apply for tax reclaims, NI numbers, etc directly on the government HMRC’s website (gov.uk) for FREE!
Scottish tax bands
Scotland has different tax bands and rates to England and Wales. The chart below details the bands and percentage tax rates.
| Tax Bands | Income | Tax |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Starter Rate | £12,571 – £14,732 | 19% |
| Scottish Basic Rate | £14,733 – £25,688 | 20% |
| Intermediate Rate | £25,689 – £43,662 | 21% |
| Higher Rate | £43,663 – £125,140 | 42% |
| Top Rate | Over £125,140 | 47% |
