The UK’s tax system can look quite complex, as there are so many taxes to be taken into account when filing your return.
To make it easier to understand and to make sure you’re paying the correct amount, we’ve created an infographic explaining the different tax brackets you may fall into and how much you’ll pay.
Here’s what the UK tax brackets look like in 2022/23, plus some helpful tips on how to make sure you don’t get caught out by any of the minor changes that were made this year.
Basic Income Tax Structure
In most developed countries, tax brackets include a range of income percentages that apply to an individual’s overall income.
The UK’s tax bracket is used to determine how much you owe in taxes each year depending on your level of income.
Essentially, when you earn more money, you pay more taxes as well.
The amount of taxes paid will vary from person to person depending on their overall salary and total earnings for the year.
Amount of Income Tax Due in the UK 2022-2023
0% of earnings between £0 - £12,570.
20% of earnings over between £12,571 - £50,270.
40% of earnings over £50,271 to £150,000.
45% of earnings over £150,000.
1 - Standard Allowance
The first step is to calculate how much money you can add to your wage before having it taxed. This is known as your standard personal allowance. It's a fixed amount, and in 2022/23 it stands at £12,570.
This means that if you earn less than £12,570 before tax, then any income up to that amount will be tax-free.
If you earn more than £12,570 before tax then only earnings up to that figure will be paid without having tax deducted from them; anything over will be subject to an income tax rate of 20% for basic-rate taxpayers or 40%/45% for higher-rate taxpayers.
You are responsible for paying any income taxes owed by yourself.
2 - Personal Allowance
The Personal Allowance is a fixed amount of income you can earn each year without paying any tax. It is currently £12,570 for basic-rate taxpayers, and £50,271 for higher-rate taxpayers.
If your earnings are below these amounts in a given year, you will not be required to pay any tax on that income (your employer will withhold it from your paycheck).
However, if your earnings exceed either amount and push you into a higher tax bracket (such as if your salary increases) then some or all of it may be subject to tax at that higher rate.
3 - Basic Rate Earner
This is where people with incomes between £12,570 and £50,271 will fall. People in the basic rate tax bracket are eligible for a personal allowance of £12,570 and pay 20% income tax on their earnings from taxable income up to that amount.
In addition to paying 20% basic rate tax on taxable income over £12,570 a year, they also have to pay 40% income tax on any earnings above £50,271.
So their total marginal rate of tax can be (income plus supplementary taxes) is: 20 + 40 = 60%. This is called their additional or marginal rate. Don't forget NI as well.
4 - Higher Rate Earner
If you are a higher rate taxpayer, you will be subject to income tax of 40%. This is payable on taxable income above £50,271. To clarify: if your taxable income is £52,271 you will pay tax at 40% on £2,000.
You will also pay an tax at 20% for the band of taxable income from of £12,570 up to £52,271.
Final UK Tax Brackets Takeaways and Next Steps
As you can see, tax brackets can appear to be complex, but are pretty straightforward when you understand them.
In fact, if you look at your paycheck, you might even notice that a lot of it seems to come out automatically. It is important to note that employers make withholdings on behalf of their employees and remit them to federal and state agencies on behalf of their employees.
If there is more tax withheld than what is actually owed by a worker, they will receive a refund once they file their taxes during April.
However, if there was less money withheld than what they owe in taxes for one year or another, they will have to pay any outstanding amount due in April as well.
The concept of tax brackets ensures an equitable system where people are charged based on their ability to pay instead of everyone being taxed at an equal rate.