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The UK personal allowance entitles taxpayers to earn a certain amount tax-free every year.
The figure changes every tax year and is announced as part of the Governments Autumn Budget.
A tax year runs from 6 April to 5 April each year.
Here’s a guide to the UK personal allowance, how to claim it and what happens once your earnings exceed it.
What is the UK Personal Allowance for 2019/2020?
The UK personal allowance for 2019/2020 is £12,500.
You may be entitled to more tax-free earnings if you are eligible to claim:
- Marriage Allowance
- Blind Persons Allowance
The allowance is reduced once your income goes over £100,000.
What Happens Once You Earn Over £100,000
Once you earn over £100,000 your personal tax allowance is reduced by £1 for every £2 of your income over £100,000.
That means once your earnings reach £123,000 in the tax year 2019/2020 you will lose all your Personal Allowance.
How to Claim the Personal Allowance?
The way that you claim it depends on how you earn your income.
If you are employed and your employer takes responsibility for calculating your taxes, then they will make sure you received your tax-free earnings.
Employers will you will give you a portion of your allowance every time they pay you.
So if you are paid monthly, for example, you’ll receive 1/12ths of the personal allowance every month (that’s £1,041.67 per month for 2019/2020).
If you are self-employed, when tax time comes and you complete your self-assessment tax return form, your personal allowance will be given to you as part of your tax calculation.
How Much Income Tax Will I Pay?
You pay income tax on any earnings above your personal tax allowance. The more you earn the more tax you pay.
The current income tax bands for 2019/2020 are as follows:
|Basic rate 20%||£12,501 to £50,000||£11,851 to £46,350|
|Higher rate 40%||£50,001 and £150,000||£46,351 to £150,000|
|Additional rate 45%||over £150,000||over £150,000|
Carlos earns £30,000 for the tax year 2018/2019.
He will pay tax of £3,500 and this is worked out as follows:
On the first £12,500 0% = £0
On the next £17,500 20% = £3,500
Do I Need to Tell HMRC About Earnings Below the Personal Allowance Threshold?
There is a common misconception that if you earn below the tax-free amount HMRC do not need to know about it. This is incorrect.
If you earn more than £1,000, you must let HMRC know about it. Even if you earn below the allowance and have no tax to pay on it.
If you earn less than £1,000 in income, you may be eligible to claim the HMRC Trading Allowance meaning you don’t need to register and tell HMRC about your income.
Are State Benefits Taxable?
Certain state benefits are taxable, these include:
- the State Pension
- Jobseeker’s Allowance (JSA)
- Carer’s Allowance
- contribution-based Employment and Support Allowance (ESA)
- Incapacity Benefit (from the 29th week you get it)
- Bereavement Allowance
- pensions paid by the Industrial Death Benefit scheme
- Widowed Parent’s Allowance
- Widow’s pension
State benefits which are not taxable include:
- Housing Benefit
- income-related Employment and Support Allowance (ESA)
- Income Support – though you may have to pay tax on Income Support if you’re involved in a strike
- Working Tax Credit
- Child Tax Credit
- Disability Living Allowance
- Child Benefit (income-based – try the Child Benefit tax calculator to see if you’ll have to pay tax)
- Personal Independence Payment
- Guardian’s Allowance
- Attendance Allowance
- Pension Credit
- Winter Fuel Payments
- Free TV licence for over-75s
- Lump-sum bereavement payments
- Maternity Allowance
- Industrial Injuries Benefit
- Severe Disablement Allowance
- Universal Credit
- War Widow’s Pension
Anita is a Chartered Accountant with over a decade of experience taking self employed business owners from financially confused to business savvy.
She is the creator of the ‘Go Self Employed’ website, which her corner on the internet where she makes self employment less terrifying.