The UK personal allowance is one of the UK income tax allowances 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.
Here’s a guide to the UK personal allowance, how to claim it and what happens once your earnings exceed it.
I’ve updated this post on 23 June 2020
What is the UK Personal Tax Allowance for 2020/2021?
The UK personal allowance for 2020/2021 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 restricted once your income goes over £100,000.
Personal Allowance Restriction
Once you earn over £100,000 your personal tax allowance is restricted 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. Your mmployers 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.
If you are employed and self-employed then you should check whether your employer is giving you your tax-free pay or whether you should claim in on your tax return so you aren’t missing out, or worse, claiming it twice which will mean you owe money back to HMRC.
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 2020/2021 are as follows:
|Basic rate 20%||£12,571 to £50,270||£12,501 to £50,270|
|Higher rate 40%||£50,271 and £150,000||£50,001 and £150,000|
|Additional rate 45%||over £150,000||over £150,000|
You earn £30,000 for the tax year 2020/2021. You will pay tax of £3,500 which 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.
Want to learn more about working for yourself? Read my blog series Understanding Self-Employment