Understand how the UK tax brackets work in England and Scotland and how you pay income tax on your taxable income across the different tax bands (including if you’re self-employed).
Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
What is Income Tax in the UK?
Income tax is a type of tax you pay in the UK on your taxable earnings. Not all types of income are taxable and you can claim income tax allowances and reliefs to reduce the amount of income tax you pay.
Income tax is one type of tax in the UK. Depending on the type of income you earn you may need to pay alternative or additional types of tax such as:
DID YOU KNOW
In the 2021-22 tax year, the UK government raised £225bn in income tax from taxpayers
Source: House of Commons Library
What are the UK Tax Brackets?
The tax brackets tend to change at the start of each tax year, although they have been frozen in recent years.
Income Tax Rates for Tax Year* 2023-24
England & Wales
- 0%: £0 to £12,570 (personal allowance)
- 20%: £12,571 to £50,270 (basic rate)
- 40%: £50,271 to £100,000 (higher rate)
- 60%: £100,001 to £125,139 (higher rate + personal allowance restriction)
- 45%: Over £125,140 (additional rate)
Scotland
- 0%: £0 to £12,570 (personal allowance)
- 19%: £12,571 to £14,732 (starter rate)
- 20%: £14,733 to £25,688 (basic rate)
- 21%: £25,689 to £43,662 (intermediate rate)
- 42%: £43,663 to £100,000 (higher rate)
- 63%: £100,001 to £125,140 (higher rate + personal allowance restriction)
- 47%: Over £125,141 (top rate)
* the tax year runs from 6 April to 5 April
The personal allowance is clawed back for anyone that earns over £100,000 (this is known as the personal allowance restriction). It is restricted by £1 for every £2 of your income over £100,000 – the clawback of personal allowance results in a 60% tax rate in England and 63% in Scotland. That means once earnings reach £125,140, all personal allowance is lost.
Tax Bands For the Self-Employed
The UK tax brackets above apply if you are self-employed. You’ll pay income tax on your business profits at the same rates as individuals. But it is worth noting that if you’re employed and self-employed, you’ll pay income tax based on your combined income. You’ll also pay class 2 and class 4 national insurance on your business profits as well.
Read this guide to find out more about how self-employment tax works
How Do Income Tax Bands Work?
The more you earn, the more income tax you pay. But it’s on a sliding scale, so you’ll pay different rates depending on the portion of your income that falls into each tax band. Here’s how to calculate what income tax bands you fall into:
Firstly you need to confirm that your income counts as taxable income. Some types of income and benefits are tax-free. Read this guide to find out what counts as taxable income and this one to check which state benefits are taxable, depending on what is relevant to you.
Then you’ll need to add up all your taxable income for the tax year from all sources. Income tax is a cumulative tax, so it is based on everything you earn. So if you are employed and self-employed**, for example, the income tax bracket you’ll fall into will be based on the combined income from your payslip and taxable profits.
Once you have your total taxable income you can use the .GOV income tax calculator to estimate how much tax you’ll pay.
**If you are self-employed or a side hustler, then you can also claim the trading income allowance in addition to the personal allowance.
DID YOU KNOW
If you work for yourself you can claim the £1,000 trading income allowance in addition to the personal allowance of £12,570
Example of How the UK Tax Brackets Work
Penny lives in London and is employed and self-employed. For the tax year 2023-24, she earns a gross salary of £40,000 in her job and her business profits are £20,000 so her total taxable income is £60,000. Her income above the personal allowance falls into the basic rate and higher rate tax bands meaning her total tax bill is £11,432 calculated as follows:
- On the first £12,570 0% = £0
- On the next £37,699 20% = £7,540
- On the final £9,731 40% = £3,892
Since Penny is paid under the rules of PAYE, she will also pay Class 1 national insurance on her salary income. However, this is worked out separately by her employer who will issue a payslip with details of deductions made using her tax code. As she has a side hustle, she will also need to pay class 2 and class 4 national insurance on her business profits (read this guide to find out more about self-employment taxes).
Is all Taxable Income Taxed at the Same Rate?
You may pay different tax rates depending on your total taxable income. You could pay tax at the basic rate, higher rate and additional rate tax brackets, depending on your total earnings for the tax year.
