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From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

Working out your tax

You need to be able to work out your tax so that you can check you are paying the correct amount. We explain how in four steps.

Content on this page:

Steps to work out your tax

The tax year runs from 6 April one year to 5 April the next, for example, the tax year 2023/24 runs from 6 April 2023 to 5 April 2024.

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 or deductible employment expenses that have not been reimbursed.

For many people in employment, their only taxable income will be their taxable employment income, including non-cash benefits-in-kind.

Pensioners might have a few different sources of income – for example, a state pension and a private or occupational pension.

You have to pay tax on any other taxable income that you have in the tax year too, such as savings income or profits from renting out a property. So, if you have any other taxable income, you need to include this in your calculations.

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 2023 and finishing on 5 April 2024 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.

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. For many people, their only allowance will be the personal allowance.

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, in which 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 2023/24) and a dividend allowance (£1,000 for all taxpayers for 2023/24). These are not tax allowances as such; they are 0% rate bands of tax for savings income and dividend income respectively.

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. Consider if you can take anything off or need to add anything to your tax bill

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 that is also taxable in the UK, as part of a foreign tax credit claim. See our page Double taxation 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). To know how much tax you have paid through PAYE, look at the P45 or P60 forms which should have been issued to you by your employer(s) or pension provider(s). See also our information on how you can check your coding notice and understand your payslip.

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.

Calculation layout

For most individuals with simple tax affairs the way the tax calculation works is as set out below.

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

 

£

Total taxable income – most income is taxable although some may be tax free

xxxx

Take off certain tax allowances

- xxxx

You are left with the amount of your taxable income on which you have to pay tax

xxxx

Calculate your tax liability using the tax rates that apply to you

xxxx

Take off the amounts you get due to any special allowances, for example, marriage allowance

- xxxx

Take off any tax already deducted from the income you receive before you get it

- xxxx

Tax now due or repayable

xxxx
or
- xxxx

Example: employment income

If you live in England, Wales or Northern Ireland, have a job earning £350 a week and you are single, your 2023/24 tax calculation would probably work out like this, using the table above:

 

£

Total taxable income – wages: £350 a week x 52 weeks

18,200

Take off your personal allowance

-12,570

You are left with the amount of your taxable income on which you have to pay tax:
£18,200 less £12,570

5,630

Calculate your tax liability:
£5,630 x 20%

1,126

Take off the amounts you get due to any special allowances

None

Take off any tax already deducted from the income you receive before you get it:
This depends on the PAYE code used for your wages but here we assume you
were on the correct code for the whole tax year

-1,126

Tax now due or (repayable)

£0

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

Example: occupational pensions, state pension and savings income

Amy was born in 1933 and is widowed. She lives in England and is registered blind. For 2023/24 she has the following income – you can see how the starting rate for savings of 0%, personal savings allowance (also called 'savings nil rate') and dividend allowance (also called 'dividend nil rate') can affect your tax bill:

 

Income before tax

£

Tax taken off

£

Occupational pension 1

6,930

0

Occupational pension 2

4,360

796

State pension

8,122

 

National Savings Income Bonds – interest

2,000

 

Bank interest

500

 

Dividends

1,800

 

 

23,712

796

Once Amy has totalled up her income as above, she can go on to work out her tax.

Working out Amy's tax

£

Amy's income before tax comes to

23,712

Take off her allowances:

 

Tax free personal allowance

-12,570

Blind person’s allowance (as Amy is registered blind)

-2,870

Amy’s taxable income on which she has to pay tax

8,272

Total tax on pensions:

Note: Amy pays her highest rate of tax on the pensions, so we take her allowances from her pensions first so that she pays as little tax as possible

 

Total pension income (£6,930 + £4,360 + £8,122)

19,412

Allowances to come off (£12,570 + £2,870)

-15,440

 

3,972

Tax on £3,972 is:

 

£3,972 @ 20%

794.40

Tax on Income Bonds:

Note: Amy still has part of her starting rate for savings unused, so part of her interest is taxed at 0%. The starting rate for savings limit for 2023/24 is £5,000, which when added to Amy’s allowances of £15,440 makes £20,440; take away Amy’s pension income of £19,412 and we are left with £1,028 to set against her savings income of £2,500. The savings nil rate (personal savings allowance) also applies, meaning another £1,000 of her savings income is taxed, but at 0% – meaning no tax is due. The rest is taxed at 20%.

 

£1,028 @ 0% starting rate for savings

0

£972 @ 0% savings nil rate (personal savings allowance)

0

Tax on bank interest:

 

£28 @ 0% savings nil rate (personal savings allowance (£1,000 - £972))

0

£472 @ 20%

94.40

Tax on dividends:

Note: Dividends up to £1,000 are within Amy’s dividend tax allowance, meaning they are taxed at 0%. Dividends in excess of this are taxed at the dividend ordinary rate of 8.75%.

 

£1,000 @ 0%

0

£800 @ 8.75%

70

Total tax liability before special allowances

958.80

Less: Special allowances:

Note: Amy has no special allowances, for example, married couple’s allowance

0

Less: Tax already taken off (see above):

Note: This is the tax taken off Amy's income before she receives it, so we need to take this off her tax bill

(796)

Amy's tax underpayment

162.80

Amy has a tax underpayment of £162.80. This is tax on her savings and dividend income and it arises because these sources of income were not included in her PAYE tax code. She must pay this tax liability – HMRC may try to collect it through her PAYE code in a future tax year.

More information

If you are self-employed, you may find our guidance on Calculating self-employed profits helpful.

HMRC have a tax estimate calculator for the current tax year, which you may be able to use if your tax affairs are simple. You can find the calculator and information about who can use it via GOV.UK.

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