Ah tax, does anyone actually know how it works? Even by the time you’ve reached adulthood, it’s normal to feel unsure about how much you’re meant to be paying in taxes. Let’s be honest, it can all be pretty confusing!
But taking the time to understand taxes is an incredibly important part of life in the UK. By understanding what you owe, you can financially plan for the year ahead. Being caught out with a tax bill you can’t pay is not ideal.
But don’t worry! The UK tax system doesn’t have to be confusing as long as you break it down. Once you’ve grasped the basics, knowing what you owe is just a simple calculation away.
Let’s get into it..
When Do I Need To Start Paying Tax In The UK?
We’d all like to keep 100% our income to spend on clothes and nights out with mates. But in the UK, like it or not, everyone needs to pay their taxes.
Fortunately, no one needs to start paying until they are earning over the personal allowance threshold. As of the year 2023/24, this is currently set at £12,570.
Once your income exceeds this amount, it will become subject to income tax and National Insurance contributions.
But what about those earning £400 a week? Well, anyone on this pay will have an annual income of £20,800. As this is over the personal allowance threshold, those on this income will be subject to tax.
What Are Income Tax Rates And Bands?
So, people on £400 a week will need to pay taxes. But exactly how much will they owe?
Regarding income tax, how much you pay each year depends on two things: how much you earn, and your tax band.
If you earn above the personal allowance threshold, the bands and rates are as follows:
- Basic Rate - Earning £12,571 to £50,270
- Higher Rate - Earning £50,270 to £125,140
- Additional Rate - Earning over £125,140
Depending on which band your income falls in, the rate of tax you pay will also vary. Those in the Basic Rate band will pay 20%, the Higher Rate band will pay 40%, and those in the Additional Rate band will pay a rate of 45%.
If you earn £400 a week, which equals £20,800 a year, you will be in the Basic Rate band. This means you’ll be paying a rate of 20% on any money earned above the personal allowance threshold.
To be clear - you’ll only taxed on anything you earn above £12,570.
How Much Total Tax Will I Pay On £400 A Week?
So, on £400 a week, your income tax charge will be in the 20% band. But you’ll also need to pay National Insurance contributions. So, exactly how much does all this come to?
This answer can be found with a couple of simple calculations:
First, let’s calculate income tax!
To do this, deduct the personal allowance from your annual income. In this case, £20,800 minus £12,570 leaves a taxable income of £8,230. As your income is in the Basic Rate band, the income tax you owe is 20%.
20% of £8,230 is £1,646.
Therefore, your annual income tax charge will be approximately £1,646.
This leaves a monthly charge of approximately £137 and a weekly charge of £34.
Not so tricky, right?
National Insurance Contributions (NICs)
As of 2023/24, earning between £242 to £967 a week will place you in the Class 1 National Insurance rate. Anyone earning within this rate will be taxed 12% in NICs.
This applies to individuals earning £400 a week. 12% of the taxable income of £8,230 is £987.
So, their annual NIC charge on taxable income will be around £987.
This leaves a monthly NIC charge of approximately £82 and a weekly charge of £20.
Finally, before you leave your head spinning with numbers, it's time for the final calculation!
Adding up the final income tax and NICs will show you how much you owe. This is approximately £2,633 a year, or £54 a week.
This will leave your annual take-home pay at £18,167 per year, or £1,513 a month.
Phew! That’s all the calculations done and dusted!
On a weekly income of £400, in the UK, you will be liable for both income tax and NICs. After these deductions, this will leave you with approximately £18,167 in annual take-home pay.
No one likes to sort out their taxes. But by following these simple calculations, it doesn’t have to be hard. Understanding your tax liabilities is also hugely helpful when it comes to managing your income in an effective way.
So, however much you hate maths, it’s good practice to whip out the calculator and take the time to calculate your taxes!
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