The ins and outs of Income Tax

Being taxed is an inevitability of life, but do you know how much tax you should be paying and what the finer details are?


The tax-free allowance

Whether you're employed or self-employed, you'll be able to earn up to a certain amount before you have to pay Income Tax. For the tax year 2015-2016 the standard tax-free allowance was £10,600. This is also known as your Personal Allowance, and anything you earn over and above this amount will be taxed.

Your Personal Allowance may be bigger if you get Blind Person's Allowance or if you were born before 6 April 1938, and it will be smaller if you earn more than £100,000 a year.

Income tax categories  

Tax bands

How much tax you pay depends on how much you earn over your Personal Allowance. If you earn up to £31,785 over your Personal Allowance, you'll fall within the first tax band. Any income within this range will be taxed at the basic rate of 20%.

The second tax band covers anything you earn that's between £31,786 and £150,000 above your Personal Allowance. Income within this range will be taxed at 40%. So, if you're on a salary of £45,000, you won't pay any tax for the first £10,600, you'll pay 20% on £31,785 and then 40% on the remaining  £2,615.

If you're lucky enough to earn more than £150,000 in a year, you'll be taxed at a rate of 45% beyond that amount - and don't forget that anyone earning above £100,000 will have a lower tax-free Personal Allowance.

 Income tax bands

Will my savings and dividends be taxed?

If your savings generate interest, it will be automatically taxed at 20%. Your bank will deduct this before it hits your account and pass it to the taxman on your behalf.

The only exceptions are Individual Savings Accounts (ISAs) and some National Savings and Investments products like savings certificates and Premium Bonds. You won't pay any Income Tax on these.

And if you're on a low income you might not have to pay any tax on your savings or you may be able to claim the tax back. On the other hand, if you're a high earner, you might end up having to pay more.

Dividends are taxed differently, as only higher (40%) or additional rate (45%) taxpayers pay tax on dividends. 

Marriage Allowance to reduce income tax 

Income Tax on GOV.UK Verify

You can now use a number of tax-related services on GOV.UK Verify, including checking how much Income Tax you need to pay, completing your Self Assessment online, and calculating how much Company Car Tax you may need to pay. 

When you register with GOV.UK Verify to use these services, you'll need to have your identity checked. That's where CitizenSafe comes in. We're one of the Government's trusted providers of identity checks and you'll be able to choose us when you log into GOV.UK Verify.


More about CitizenSafe

We've been in the identity business for 16 years, and provide secure and simple online checks. In fact, identity verification is all we do. It's our passion, and as geeky as it sounds, we love helping people sort out their admin online. Once you're verified, you'll have access to a whole range of GOV.UK services - stuff you used to have to queue up for in an office can now be done from the comfort of your own home - and that leaves more time for the nicer things in life.


Find out more

Keep up-to-date with the services you can access through GOV.UK Verify on our website,  and find out about all the other government services available online at GOV.UK

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