Income tax

What is income tax?

This is a tax levied directly on the personal income of individuals. Individuals pay Income Tax on things like:

• wages or salaries
• self-employment profits
• rental income
• benefits from employers
• interest on savings

There are a few different rates of income tax in the UK, which are:

• tax free rate
• basic rate
• higher rate
• additional rate

If you live in Scotland, then there a few more rates to know about.

Below is an example of how income tax is calculated if you earned £20,000 per year from a job.

£0 to £12,500 would be taxed at 0%, in other words tax-free because this is covered by something called a Personal Allowance.

The remaining income would be taxed at 20%; £12,501 to £20,000.

This would result in £1,500 of Income Tax due on £20,000 of earnings.

The current rates and bands can be found at gov.uk