Income tax rates remain the same for personal allowances thresholds for the tax year 2022/23. There are plans to keep these rates until 2025. The table below gives a quick overview of income tax rates and thresholds for employees.
Tax Band Thresholds
Tax Band Thresholds
|Personal allowance: How much income you can earn before you start to pay income tax. No tax on this income.||£0 – £12,570||£0 – £12,570|
|Basic rate income tax: 20% tax on the proportion of income which falls into this tax bracket.||£12,571 – £50,270||£12,571 – £50,270|
|Higher rate income tax: The part of your income which falls into this tax band is taxed at 40%||£50,271 – £150,000||£50,271 – £150,000|
|Additional rate income tax: This is the highest rate. The income you earn above this threshold is subject to tax at 45%||£150,000 upwards||£150,000 upwards|
Below there are enclosed some additional information and links from the treasury in respect to taxation.
Income Tax is a tax you pay on your income. You do not have to pay tax on all types of income.
You pay tax on things like:
- money you earn from employment
- profits you make if you’re self-employed – including from services you sell through websites or apps
- some state benefits
- grants and support payments made to you or your business because of coronavirus, including the Self-Employment Income Support Scheme, the Coronavirus Job Retention Scheme, the Small Business Grant Fund or the Retail, Hospitality and Leisure Grant Fund
- the Test and Trace Support Payment in England (or the Self-isolation Support Payment in Scotland and the Self-isolation Support Scheme in Wales)
- most pensions, including state pensions, company and personal pensions and retirement annuities
- rental income (unless you’re a live-in landlord and get less than the rent a room limit)
- benefits you get from your job
- income from a trust
- interest on savings over your savings allowance
You do not pay tax on things like:
- the first £1,000 of income from self-employment – this is your ‘trading allowance’
- the first £1,000 of income from property you rent (unless you’re using the Rent a Room Scheme)
- income from tax-exempt accounts, like Individual Savings Accounts (ISAs) and National Savings Certificates
- dividends from company shares under your dividends allowance
- some state benefits
- premium bond or National Lottery wins
- rent you get from a lodger in your house that’s below the rent a room limit
If you only occasionally sell items or rent out property (for example through auction websites or short-term rental apps), check if you need to tell HMRC about this income.
How you pay Income Tax
Pay As You Earn (PAYE)
Most people pay Income Tax through PAYE. This is the system your employer or pension provider uses to take Income Tax and National Insurance contributions before they pay your wages or pension. Your tax code tells your employer how much to deduct.
Tax on state benefits
Your tax code can take account of taxable state benefits, so if you owe tax on them (for example for the State Pension) it’s usually taken automatically from your other income.
If the State Pension is your only income, HM Revenue and Customs (HMRC) will write to you if you owe Income Tax. You may need to fill in a Self Assessment tax return.
Self Assessment tax returns
If your financial affairs are more complex (for example you’re self-employed or have a high income) you may pay Income Tax and National Insurance through Self Assessment. You’ll need to fill in a tax return every year.
You must also fill in a tax return if you earned more than either:
- £1,000 from self-employment
- £2,500 from other untaxed income, for example from tips or renting out a property
Contact the Income Tax helpline if your income from renting out a property was between £1,000 and £2,500.
Tax-free and taxable state benefits
State benefits that are taxable
The most common benefits that you pay Income Tax on are:
- Bereavement Allowance (previously Widow’s pension)
- Carer’s Allowance
- contribution-based Employment and Support Allowance (ESA)
- Incapacity Benefit (from the 29th week you get it)
- Jobseeker’s Allowance (JSA)
- pensions paid by the Industrial Death Benefit scheme
- the State Pension
- Widowed Parent’s Allowance
Tax-free state benefits
The most common state benefits you do not have to pay Income Tax on are:
- Attendance Allowance
- Bereavement support payment
- Child Benefit (income-based – use the Child Benefit tax calculator to see if you’ll have to pay tax)
- Child Tax Credit
- Disability Living Allowance (DLA)
- free TV licence for over-75s
- Guardian’s Allowance
- Housing Benefit
- Income Support – though you may have to pay tax on Income Support if you’re involved in a strike
- income-related Employment and Support Allowance (ESA)
- Industrial Injuries Benefit
- lump-sum bereavement payments
- Maternity Allowance
- Pension Credit
- Personal Independence Payment (PIP)
- Severe Disablement Allowance
- Universal Credit
- War Widow’s Pension
- Winter Fuel Payments and Christmas Bonus
- Working Tax Credit
National Insurance Overview
You pay National Insurance contributions to qualify for certain benefits and the State Pension.
Who pays National Insurance
You pay mandatory National Insurance if you’re 16 or over and are either:
- an employee earning above £190 a week
- self-employed and making a profit of £6,725 or more a year
You may be able to pay voluntary contributions to avoid gaps in your NI contributions.
You need a National Insurance number before you can start paying National Insurance contributions.
If you earn between £123 and £190 a week, your contributions are treated as having been paid to protect your National Insurance record.
National Insurance classes
There are different types of National Insurance (known as ‘classes’).
The type you pay depends on your employment status and how much you earn.
When you stop paying
If you’re self-employed you stop paying:
- Class 2 National Insurance when you reach State Pension age
- Class 4 National Insurance from 6 April (start of the tax year) after you reach State Pension age
How much you pay
The amount of National Insurance you pay depends on your employment status and how much you earn.
National Insurance April 2022
From 6 April 2022 to 5 April 2023 National Insurance contributions will increase by 1.25 percentage points. This will be spent on the NHS, health and social care in the UK.
The increase will apply to:
- Class 1 (paid by employees)
- Class 4 (paid by self-employed)
- secondary Class 1, 1A and 1B (paid by employers)
The increase will not apply if you are over the State Pension age.
If you’re employed
You pay Class 1 National Insurance contributions. The rates for most people for the 2022 to 2023 tax year are:
|Your pay||Class 1 National Insurance rate|
|£190 to £967 a week (£823 to £4,189 a month)||13.25%|
|Over £967 a week (£4,189 a month)||3.25%|
You’ll pay less if:
- you’re a married woman or widow with a valid ‘certificate of election’
- you’re deferring National Insurance because you’ve got more than one job
Employers pay a different rate of National Insurance depending on their employees’ category letters.
How to pay
You pay National Insurance with your tax. Your employer will take it from your wages before you get paid. Your payslip will show your contributions.
If you’re a director of a limited company, you may also be your own employee and pay Class 1 National Insurance through your PAYE payroll.
If you’re self-employed
You may be able to pay voluntary contributions to avoid gaps in your National Insurance record if you:
- have profits of less than £6,725 a year from your self-employment
- have a specific job (such as an examiner or business owner in property or land) and you do not pay Class 2 National Insurance through Self Assessment
If you have gaps and do not pay voluntary contributions, this may affect the benefits you can get, such as the State Pension.
If you have a specific job and you do not pay Class 2 National Insurance through Self Assessment, you need to contact HMRC to arrange a voluntary payment.
If you’re employed and self-employed
You might be an employee but also do self-employed work. In this case your employer will deduct your Class 1 National Insurance from your wages, and you may have to pay Class 2 and 4 National Insurance for your self-employed work.
How much you pay depends on your combined wages and your self-employed work. HM Revenue and Customs (HMRC) will let you know how much National Insurance is due after you’ve filed your Self Assessment tax return.
Directors, landlords and share fishermen
There are different National Insurance rules if you’re a:
- director of a limited company
- landlord running a property business
- share fisherman, for example you’re working on a British fishing boat but not under a contract of service.
Check out our article Advantages Of Buying Property Through A Limited Company for more information about property investments. We also include a list on Common Questions About Purchasing Property Through A Limited Company You may find this useful when deciding which route to take as a property investor.
Esper Wealth always recommends speaking with a tax specialist. We put you in touch with a range of professionals when buying investment property through us. The Investment Process explains how we make buying property easier for our clients. We offer all prospective new clients a free investment review. This can help you identify the best property investments for you individual needs.