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How to calculate Income Tax - UK Tax Year 2024/25
This salary tax guide explains what Income Tax is, who has to pay Income Tax and the different income allowances which are exempt from tax. This Income tax article also provides an example of how to calculate your Income Tax (PAYE) deductions based on your 'Gross Pay' and 'salary after tax' for the Tax Year but, if you prefer, you can use our 2024/25 Income Tax calculator which does all the calculations for you
Who has to Pay Income Tax in the UK?
Who has to pay tax? is probably the second most common question we ask, right after Why do I have to pay Tax?. The reality is that none of us like paying tax and most have difficulty accepting the levels of Tax they pay.
If you work in the UK, the bottom line is that you are most likely legally obliged to pay Income Tax unless you have specific exemptions, you will also be expected to pay National Insurance. Its worth reading this useful article on how to reduce the amount of income tax and National Insurance you pay, particulalry if you are unfamiliar with how National Insurance is calculated and what National Insurance is used for.
Income Tax is, unsurprisingly, a tax which is directly related to your income. The idea being that the more you earn, the more you pay. The Income Tax rates for 2024/25 can be found further down this page along with details on income tax allowances. Income tax is a stepped rate (logarithmic) which ranges from 0% of income to 45% with those on a higher income having more of their income subtracted.
Income Tax - a fair tax system?
The stepped income tax rate is a contentious issue with the large step between rates often resulting in those who earn a specific amount 'losing out' by just creeping into a certain band. There have been various government income tax initiatives over the years to address this but the stepped approach is still in place. Other options considered include a linear rate (rising steadily dependent on income) and a flat rate so that everyone pays the same rate regardless of what they earn. Income tax policies will always be contentious as the interpretation of the word Fair is very subjective with opinion based typically on how much you are earning. Lower earners think the higher earners should pay, higher earners feel they are unjustly underpinning the economy. The arguments are well documented with the super rich increasingly targeted in 2012/2013 for tax avoidance. Authors opinion? My preference is for a flat rate, its a fairer system and will attract higher earners and business into the UK. We are a service economy now with very little manufacturing, we need to attract businesses whose employees would benefit from lower taxes and subsequently spend their money in the UK, create a little cash flow and blah, blah blah. You comments are welcome at the bottom of this article.
What is included in Income Tax calculations in 2024/25
Impartially... pretty much all your income above a certain level will be subject to Income Tax. Specifically, Income Tax is payable on:
- Your earnings as an Employee
- Your earning from Self Employment
- Your income from your pension (including State Pension, Personal Pension and Company Pensions)
- Income from the interest generated from your savings or from shares
- Income from rental of a property
- Income from a Trust Fund
Who is exempt from Income Tax in the UK?
You will be glad to here that not all of your income is taxable and all those within the UK who have to pay income tax have personal tax allowances. Income Tax exceptions include:
State benefits - including:
- Disability Living Allowance
- Attendance Allowance
- Lump sum Bereavement Payments
- Pension Credit
- Free TV license for over 75s (Currently planned to phase out in 2020)
- Winter Fuel Payments and Christmas Bonus
- Housing Benefit
- Employment and Support Allowance - income based (if you haven't paid enough National Insurance contributions)
- Income Support - certain payments
- Child Benefit
- Guardian's Allowance
- Maternity Allowance
- Industrial Injuries Benefit
- Severe Disablement Allowance
- War Widow's Pension
- Young Person's Bridging Allowance
Interest on savings
Rents
Tax Credits
Premium Bonds
What is my Personal Allowance?
In income Tax terms, your Personal Allowance is the amount you can earn before Tax rates apply. It is not a sum of funds that you will be paid. The truth is that this should be called a Tax Free Earnings Threshold or similar, Personal Allowance is somewhat misleading. AS an example, if you Earned £20,000 Per year Gross Salary and your personal allowance was £8105 then the amount of income you would be taxable on would be £11985.
As set out at Budget 2011, once the personal allowance has reached £10,000 (2014/15 Tax Year), the personal allowance will increase by Consumer Prices Index (CPI) in future years, starting from 2015-16.
In the 2023 Budget, the personal allowance was set at £ 12,570.00 for the 2024/25 Tax Year.
How to Calculate Income Tax in the UK
Gross Income minus Personal Allowance equals Taxable Income
Before beginning your Income Tax calculator, remember you can use our 2024/25 Income Tax calculator which does all the calculations for you, your choice.
First, decide on the tax year you are planning to build the calculator for. The tables below provide general Allowances for the Tax Years between 1999 and 2024.
Once you have decided which Tax Year you are calculating your Tax for, you can they work our your Personal Allowances. Personal allowances are specific to your situation and are basically tax free sums that are deducted from your Gross pay before applying Tax rates.
Income Tax Notes:
Tax year 2012/2013 Personal Allowance is cancelled as a standard allowance and replaced by a Personal allowance available for people born after 5 April 1948 at an annual rate of £9440. This is effectively the same allowance, simply split into age groups, assumingly for simplification in future Tax Years.
| Allowances | 1999 / 2000 | 2000 / 2001 | 2001 / 2002 | 2002 / 2003 | 2003 / 2004 |
|---|---|---|---|---|---|
| Personal allowance | 4,335 | 4,385 | 4,535 | 4,615 | 4,615 |
| Income limit for Personal Allowance | n/a | n/a | n/a | n/a | n/a |
| Personal allowance aged 65 to 74 | 5,720 | 5,790 | 5,950 | 6,100 | 6,610 |
| Personal allowance aged 75 and over | 5,980 | 6,050 | 6,260 | 6,370 | 6,720 |
| Married couple's allowance aged 75 and over | 5,195 | 5,255 | 5,435 | 5,535 | 5,635 |
| Income limit for age-related allowances | 16,800 | 17,000 | 17,600 | 17,900 | 18,300 |
| Minimum amount of married couple's allowance | n/a | n/a | n/a | 2,110 | 2,150 |
| Blind person's allowance | 1,380 | 1,400 | 1,450 | 1,480 | 1,510 |
| Income Tax Rates | 1999 / 2000 | 2000 / 2001 | 2001 / 2002 | 2002 / 2003 | 2003 / 2004 |
| Starting Rate % (Starting Threshold) | 10% (0) | 10% (0) | 10% (0) | 10% (0) | 10% (0) |
| Basic Rate % (Starting Threshold) | 23% (1,500) | 22% (1,520) | 22% (1,880) | 22% (1,920) | 22% (1,960) |
| Higher Rate % (Starting Threshold) | 40% (28,000) | 40% (28,400) | 40% (29,400) | 40% (29,900) | 40% (30,500) |
| Additional Rate % (Starting Threshold) | n/a | n/a | n/a | n/a | n/a |
| Allowances | 2004 / 2005 | 2005 / 2006 | 2006 / 2007 | 2007 / 2008 | 2008 / 2009 |
|---|---|---|---|---|---|
| Personal allowance | 4,745 | 4,895 | 5,035 | 5,225 | 6,035 |
| Income limit for Personal Allowance | n/a | n/a | n/a | n/a | n/a |
| Personal allowance aged 65 to 74 | 6,830 | 7,090 | 7,280 | 7,550 | 9,030 |
| Personal allowance aged 75 and over | 6,950 | 7,220 | 7,420 | 7,690 | 9,180 |
| Married couple's allowance aged 75 and over | 5,795 | 5,975 | 6,135 | 6,365 | 6,625 |
| Income limit for age-related allowances | 18,900 | 19,500 | 20,100 | 20,900 | 21,800 |
| Minimum amount of married couple's allowance | 2,150 | 2,280 | 2,350 | 2,440 | 2,540 |
| Blind person's allowance | 1,560 | 1,610 | 1,660 | 1,730 | 1,800 |
| Income Tax Rates | 2004 / 2005 | 2005 / 2006 | 2006 / 2007 | 2007 / 2008 | 2008 / 2009 |
| Starting Rate % (Starting Threshold) | 10% (0) | 10% (0) | 10% (0) | 10% (0) | Abolished |
| Basic Rate % (Starting Threshold) | 22% (2,020) | 22% (2,090) | 22% (2,150) | 22% (2,230) | 20% (0) |
| Higher Rate % (Starting Threshold) | 40% (31,400) | 40% (32,400) | 40% (33,300) | 40% (34,600) | 40% (34,800) |
| Additional Rate % (Starting Threshold) | n/a | n/a | n/a | n/a | n/a |
| Allowances | 2009 / 2010 | 2010 / 2011 | 2011 / 2012 | 2012 / 2013 | 2013 / 2014 |
|---|---|---|---|---|---|
| Personal allowance | 6,475 | 6,475 | 7,475 | 8,105 | N/A |
| Personal allowance for people born after 5 April 1948 | - | - | - | - | 9440 |
| Personal Allowance for people born between 6 April 1938 and 5 April 1948 | - | - | - | - | 10,500 |
| Personal Allowance for people before 6 April 1938 | - | - | - | - | 10,660 |
| Income limit for Personal Allowance | n/a | 100,000 | 100,000 | 100,000 | 100,000 |
| Personal allowance aged 65 to 74 | 9,490 | 9,490 | 9,490 | 10,500 | N/A |
| Personal allowance aged 75 and over | 9,640 | 9,640 | 10,090 | 10,660 | N/A |
| Married couple's allowance aged 75 and over | 6,965 | 6,965 | 7,295 | 7,705 | 7,915 |
| Income limit for age-related allowances | 22,900 | 22,900 | 24,000 | 25,400 | N/A |
| Income limit for the allowances for those born before 6 April 1948 | - | - | - | - | 26,100 |
| Minimum amount of married couple's allowance | 2,670 | 2,670 | 2,800 | 2,960 | 3,040 |
| Blind person's allowance | 1,890 | 1,890 | 1,980 | 2,100 | 2,160 |
| Income Tax Rates | 2009 / 2010 | 2010 / 2011 | 2011 / 2012 | 2012 / 2013 | 2013 / 2014 |
| Starting Rate % (Starting Threshold) | Abolished | - | - | - | - |
| Basic Rate % (Starting Threshold) | 20% (0) | 20% (0) | 20% (0) | 20% (0) | 20% (0) |
| Higher Rate % (Starting Threshold) | 40% (37,400) | 40% (37,400) | 40% (35,000) | 40% (34,370) | 40% (32,010) |
| Additional Rate % (Starting Threshold) | n/a | 50% (43,875) | 50% (42,475) | 50% (42,475) | 45% (41,450) |
Income Tax Rates from 2014
Please note that from 2014, we moved the Income Tax and Personal Allowances information to allow easier comparison of UK income tax rates, thresholds, deductions, credits and exemptions.
P60 2024: Guides and Tools
iCalculator's P60 Guides and P60 Calculators include detailed information and guidance to help you understand your P60, identify key parts of the P60, explain how your P60 is calculated and what information you need to know and understand about a P60 as an employee and employer. Our aim with the P60 guides is to provide insight into the correct completion of a P60, whether it be an audit as an employer to ensure your end of year certificates are calculating correctly or as an employee to check that you have paid the right amount of income tax and, if not, how to claim any overpaid tax back.
- What is a P60?
- P60 Form
- P60 Tax Return Process
- P60 Explained
- P60 Checklist
- PAYE Forms Explained: Know more about P45, P46, P60 Today
- 60 Second P60 Guide
- When should you recieve a P45 and P60 in 2024?
- P60 Healthcheck
- 10 Tax Saving Tips
- 2024 P60 Employer Checklist
- 2024/25 Payslip and Payroll Software
- How to use P60 to get a Tax Rebate
- Step by Step instructions to File Tax Return Online in the UK
- 2024 Guide to tax forms P45, P60 and P11D
- Get a Tax Refund when you leave the UK: PAYE, P45, P85 explained