UK individual income tax is a tax levied on an individual’s income by the UK government. Individuals who are UK residents are liable for UK income tax on their worldwide income, regardless of where it is earned. Non-residents are only liable for UK income tax on their UK-sourced income. The UK has a progressive tax system, meaning individuals who earn more money are taxed at a higher rate than those who earn less
The current rates of UK income tax are 0% for employees making under £12,570 annually, 20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers. There are also various allowances and reliefs that can reduce an individual’s tax liability.
UK Income Tax Rates
UK income tax rates vary depending on the amount of taxable income earned. The UK has a progressive tax system, which means that higher earners are taxed at a higher rate than lower earners. The current UK income tax rates are as follows: 0% on taxable incomes between £0 and £12,570; 20% on taxable incomes between £12,501 and £50,270; 40% on taxable incomes between £50,001 and £150,000; and 45% for taxable incomes over £150,000.
The UK has a personal allowance, which is the amount of income that is tax-free. The current personal allowance is £12,500. This means that if you earn less than £12,500 in a year, you will not have to pay any UK income tax. UK income tax rates are subject to change each year, so it is important to stay up-to-date with the latest rates.
| Bracket | Tax Rate | Annual Taxable Income (GBP) | Quick Calculation (GBP) |
| 1 | 0% | Up to £12,570 | 0 |
| 2 | 20% | £12,570 to £50,270 | £7540 |
| 3 | 40% | £50,271 to £150,000 | £39,892 |
| 4 | 45% | Over £150,000 | – |
Sample Calculation
Yearly income = £200,000
Bracket 1: 0% x 12,570 = £0 tax on the first £12,570
Bracket 2: 20% x 37,700 = £7540 tax on the next £37,700
Bracket 3: 40% x 99,730 = £39,892 tax on the next £99,730
Bracket 4: 45% x 50,000 = £22,500 tax on the next £50,000
Total = £0 + £7540 + £39,892 + £22,500 = £69,932
£69,932 tax due on an annual salary of £200,000
Tax Residency in the United Kingdom
UK residents are liable for UK taxes on their worldwide income. This means that UK residents must pay UK tax on their income from UK sources, as well as their income from foreign sources. Foreign nationals who are not UK residents are only liable for UK taxes on their income from UK sources.
To determine whether someone is a tax resident there exists the ‘tax residence test’. To be classed as a UK resident for tax purposes, an individual must meet one of the following criteria:
- They have their main home in the UK (known as the ‘normal residence test’)
- They spend at least 183 days in the UK in a tax year (known as the ‘sufficient ties test’)
- They work in the UK for at least 91 days in a tax year, and they have no close ties to another country (known as the ‘automatic overseas workdays test’)
Non-residents are also liable for UK taxes on any taxable income they receive from UK sources. This includes interest, dividends and rental income. If an individual is classed as a non-resident for tax purposes, they may be able to claim certain tax allowances and reliefs. For example, they may be eligible for the personal allowance, which is the amount of income that is tax-free.
Personal Allowance in the United Kingdom
The Personal Allowance is the amount of money you’re allowed to earn each tax year before you start paying Income Tax. For the 2022/23 tax year, the Personal Allowance is £12,570. If you earn less than this, you usually won’t have to pay any income tax.
Your Personal Allowance might be bigger if you claim Marriage Allowance or Blind Person’s Allowance. Or it might be smaller if you’re a high earner or if you owe tax from a previous tax year.
If you earn over £100,000, the Personal Allowance is reduced by £1 for every £2 earned over this amount. This means that if you earn £125,000 or more, you don’t get a Personal Allowance and you’ll pay Income Tax on everything you earn.
If your taxable income (your total income minus any allowances and reliefs) is:
– Between £100,001 and £125,000 – you’ll lose £1 of your Personal Allowance for every £2 over £100,000
– More than £125,000 – you won’t get a Personal Allowance
Income Tax rates in Wales & Northern Ireland
The Income Tax rates for the 2022/23 tax year are:
– 20% on income between £0 and £37,700 (the Basic rate)
– 40% on income between £37,701 and £150,000 (the Higher rate)
– 45% on income over £150,000 (the Additional rate)
These are the same as the Income Tax rates for England.
If you live in Scotland, your Personal Allowance is different and your Income Tax rates might be too.
National Insurance in the United Kingdom
National Insurance is a system of taxes and contributions in the United Kingdom that provides certain benefits to employees, self-employed people, and retirees. The main purpose of National Insurance is to provide financial security for individuals and their families in the event of unemployment, sickness, disability, or death.
There are two types of National Insurance:
-Contributory National Insurance, which is paid by employees and self-employed people
-Non-contributory National Insurance, which is paid by retirees
You can start paying National Insurance when you reach age 16. You stop paying it when you reach state pension age.
The amount of National Insurance you pay each week depends on your employment status and how much you earn.
If you’re employed, your employer will deduct National Insurance from your wages along with Income Tax and student loan repayments, if you have one.
If you’re self-employed, you’ll need to pay National Insurance contributions yourself. You can do this through the Self-Assessment tax return system.
The benefits of paying National Insurance include:
– State Pension
– Maternity Allowance
– Bereavement Support Payment
– Industrial Injuries Disablement Benefit
– Employment and Support Allowance
You might also be eligible for other benefits, such as Jobseeker’s Allowance or Universal Credit, if you meet the eligibility criteria.
National Insurance rates and thresholds
The National Insurance rates for the 2022/23 tax year are:
– 12% on earnings between £0 and £9,568
– 2% on earnings between £9,569 and £50,270
– 0% on earnings above £50,270
There is no National Insurance payable on earnings above the Upper Earnings Limit of £170,000.
If you’re self-employed, you’ll need to pay Class 4 National Insurance contributions. The rates for Class 4 National Insurance are:
– 9% on annual profits between £9,568 and £50,270
– 2% on annual profits over £50,270
You might also need to pay Class 2 National Insurance if you’re self-employed and your annual profits are over £6,475. The rate for Class 2 National Insurance is £3.05 per week.
If you’re employed, you’ll normally stop paying National Insurance once you reach state pension age. If you’re self-employed, you can choose to stop paying Class 2 and Class 4 National Insurance once you reach state pension age.
The state pension age is currently 66 for both men and women. It’s due to increase to 67 between 2026 and 2028.
Determining Employment Status in the United Kingdom
The determination of employment status in the United Kingdom is important because it affects an individual’s entitlement to certain employment rights and also determines whether that person is an employee for income tax purposes.
There are three main types of employment status in the UK:
-Employee
-Worker
-Self-employed
An employee is someone who has a contract of employment with their employer. This means that they have certain rights, such as the right to paid holiday, sick pay, and maternity leave. Employees also have a duty to obey their employer’s reasonable orders and instructions.
A worker is someone who doesn’t have a contract of employment but who works for an employer under some other type of contract. Workers have fewer rights than employees, but they’re still entitled to the national minimum wage and paid holiday.
The self-employed are people who run their own business or offer their services to others as a freelancer or contractor. Self-employed people are not employees or workers, so they don’t have the same employment rights.
It’s important to note that an individual’s employment status can change over time. For example, someone who is initially employed may later become self-employed.
There are a number of factors that can affect an individual’s employment status, including the type of work they do, how much control their employer has over them, and whether they’re paid by the hour or by the job.
How NNRoad Can Help you hire in the UK
NNRoad is a global Employer of Record & PEO provider with a base in the United Kingdom. We are able to advise you and your dispatched or payroll employees in the United Kingdom on their individual income taxes. For more information on our HR and payroll related services in the UK, please visit our UK services page or contact us directly.
