The UK Personal Allowance for 2020/2021 Explained

I’ve updated this post on 23 June 2020

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 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:

The allowance is reduced 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.

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 2020/2021 are as follows:

 2020/20212019/2020
Personal Allowance£12,500£12,500
Basic rate 20%£12,501 to £50,000£12,501 to £50,000
Higher rate 40%£50,001 and £150,000£50,001 and £150,000
Additional rate 45%over £150,000over £150,000

Example

You earn £30,000 for the tax year 2020/2021.  

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 work for yourself, you’ll need to register as self-employed and submit a self-assessment tax return form.

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.

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Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - the UK small business finance blog for the self-employed community. Here she shares simple, straight-forward guides to make self-employment topics like taxes, bookkeeping and banking easy to understand.