How do I work out my tax?

How do I work out my tax?

You can work out your tax by following these four stages:

1. Work out whether your income is taxable or not
   
   Some income is taxable and some is tax free. You start by adding up all amounts of income on which you are charged to income tax for the tax year.
   
   You can then take certain deductions from this figure, such as trade losses.
    
2. Work out the allowances you can deduct from your taxable income
   
   There are several different tax allowances to which you might be entitled. However, at this stage of the tax calculation there are only two which are relevant: the personal allowance and the blind person’s allowance.
   
   Every man, woman and child resident in the UK has a personal allowance. For most people, the personal allowance for the tax year starting on 6 April 2022 and finishing on 5 April 2023 is £12,570.
   
   Despite its name, you do not have to be completely without sight to claim the blind person’s allowance. So if you have very poor eyesight, check if you are entitled.
   
   You can find out more information on these allowances on What tax allowances am I entitled to?. Note, however, that some so-called ‘allowances’ are in fact nil rates of tax that are applied at step 3 below, and some are given as a tax credit or tax reduction at step 4 below.
    
3. Work out at what rate your income is taxed
   
   If you qualify, some of your savings income might be taxed at 0% – that is, no tax will be due on it.
   
   Next, there is the basic rate band, where most types of income are taxed at 20%.
   
   Most people do not pay tax higher than the basic rate.
   
   But for some people with higher levels of income, 40% and 45% tax rates can also apply.
   
   In addition, you are entitled to a personal savings allowance (£1,000 for basic-rate taxpayers for 2022/23) and a dividend allowance (£2,000 for all taxpayers for 2022/23). These are not tax allowances as such; they are 0% rate bands of tax for savings income and dividend income respectively. We explain more about how these work in our page on savings income.
   
   See What tax rates apply to me? for more details.
   
   If you live in Scotland and are a Scottish taxpayer, there are Scottish rates and bands of income tax set by the Scottish Parliament that apply to your non-savings and non-dividend income. The UK rates and bands apply to your savings and dividend income.

Similarly, if you live in Wales and are a Welsh taxpayer, there are Welsh rates of income tax set by the Welsh Assembly that apply to your non-savings and non-dividend income. The UK rates apply to your savings and dividend income.

4. Finally, consider whether you can deduct anything from your tax bill and if you need to add any income tax charges
   
   For example, if you and your spouse or civil partner claim the marriage allowance (transferable tax allowance), and your spouse or civil partner has given up part of their personal allowance, then you will be entitled to a tax reduction.
   
   You may also be able to deduct foreign taxes paid on income which is also taxable in the UK, as part of a foreign tax credit claim. See What if I am liable to tax in two countries on the same income? for more information.
   
   But take care: some deductions cannot create a refund, such as the notional tax paid on gains on UK life assurance policies or investment bonds.
   
   You then need to consider whether you are liable to any tax charges, such as tax on Gift Aid donations, the high income child benefit charge, or tax on certain state pension lump sums.
   
   Your income tax liability for a year is the total amount of tax you owe for that year after all available deductions plus any income tax charges.
   
   You then compare this to the amount of UK tax you have already paid (such as tax you have paid through PAYE) – if your tax liability exceeds amounts already paid, the difference is called your balancing payment for the year.
   
   If amounts already paid exceed your tax liability, you will be due a refund.

Example calculation

For most individuals with simple tax affairs the way the tax calculation works is as set out below. The tax year runs from 6 April one year to 5 April the next. Negative or minus numbers are shown in brackets.

The calculations for Scottish taxpayers and Welsh taxpayers also follow this same basic format.

So, if you live in England, Wales or Northern Ireland, have a job earning £350 a week and you are single your 2022/23 tax calculation would probably work out like this, using the table above:

If you are a Scottish taxpayer, there is an example in our guidance on Scottish income tax.

Where can I find more information?

If you need more information on how to work out your tax, you may find our other guidance helpful:

• Employment: How do I work out my tax?
• Self-employment: How do I work out my taxable profits?
• Pensioners: How do I work out my tax?