How To Calculate Tax

How are our UK Tax Calculations made?

Our UK Tax Calculator uses the correct UK tax rates, allowances and calculation methods.

Read more below on how our calculator works.

We'll keep it simple!

Personal Allowances

	2012/2013	2011/2012	2010/2011	2009/2010	2008/2009	2007/2008	2006/2007	2005/2006
Under 65	£8,105	£7,475	£6,475	£6,475	£6,035	£5,225	£5,035	£4,895
65-74	£10,500	£9,940	£9,490	£9,490	£9,030	£7,550	£7,280	£7,090
74-75	£10,500	£9,940	£9,490	£9,490	£9,030	£7,550	£7,280	£7,090
Over 75	£10,660	£10,090	£9,490	£9,490	£9,180	£7,690	£7,420	£7,220
Age Related Allowance Limits	£25,400	£24,000	£22,900	£22,900	£21,800	£20,900	£20,100	£19,500

From the 2010-11 tax year the Personal Allowance reduces where the income is above £100, 000 – by £1 for every £2 of income above the £100,000 limit. This applies to all age groups.

However, for people over the age of 65, for the 2008-09 and 2009-10 tax years the tax free allowances will never be less than the basic Personal Allowance.

From the 2010-11 tax year the Personal Allowance for people aged 65 and over can be reduced below the basic Personal Allowance where the income is above £100,000.

From the 2013-14 tax year, the Personal Allowance will be calculated depending upon your date of birth.

Starting with tax year 2013, see below for currently published allowances:

Tax Year	Born After 5 April 1948	Born After 5 April 1938 But Before 6 April 1948	Born Before 6 April 1938	Income Limit (date of birth pre 6/4/1948)	Income Limit (date of birth post 5/4/1948)
2013/2014	£9,440	£10,500	£10,660	£26,100	£100,000
2014/2015	£10,000	£10,500	£10,660	£27,000	£100,000
2015/2016	£10,600	£10,600	£10,660	£27,700	£100,000

This list is updated up to the 2015/2016 tax year. View current tax rates and allowances.

Tax Codes

For all tax codes ending L,P,T,V,Y we take the preceding numbers and multiply them by 10. This gives your personal allowance as HMRC intended.

Codes ending L mean - Full Basic Personal Allowance applies (Under 65)

Codes ending P mean - Full Basic Personal Allowance applies (65-74)

Codes ending T mean - HMRC requires more information to determine how much tax you must pay (They may have given you a number code which is inaccurate)

Codes ending V mean - Those between the ages of 65 and 74 who are entitled to the full personal allowance as well as the married couple allowance

Codes ending Y mean - Full Basic Personal Allowance applies (Over 75)

Where you have a code that begins with K, this means we need to add the information within your tax code to your gross income by removing your personal allowance and adding a negative personal allowance. We do this by multiply the number portion of the K code by 10. When calculating the taxable amount of your gross income, this number is then added to your Gross Income.

BR TAX CODE - all of your income will be taxed at the basic rate of 20% / 22% but no personal tax free allowance given

D0 TAX CODE - Indicates all of your income is subject to the higher rate of tax. No Personal Allowance

D1 TAX CODE - Introduced from 6th April 2011, this code indicates all of your income is subject to the top rate of tax (50%) with no personal allowance for that income source. Used on secondary sources of income or pension incomes.

NT TAX CODE - Indicates that no tax is to be deducted on your income

0T TAX CODE - Indicates that you have no personal allowances and all income is subject to basic and higher rates of tax

Other Allowances/Deductions

If you provide us with a positive figure when declaring other allowances or deductions, we will add the amount you your normal personal allowance. If you provide a negative figure, we will subtract it from the personal allowance amount deduced for you.

Student Loans

If you are under 65 and have a student loan repayment, any gross income over 16,365 (in 2013/2014 - the threshold may change depending upon the tax year, check the current tax rates and allowances) is available to repay your student loan.

Currently, 9% is taken.

If you student loan was taken out after 1st September 2012, your threshold for deduction is different, i.e for 2013/2014 it is £21,000. Check the current tax rates and allowances.

Married Couples Allowance

If you are over 75 and married, then you can claim a married couples allowance to reduce your tax bill.

There are however, income limits to which the allowance is tapered.

E.g. For 2010/2011, if your income is less than £22,900 then you have the full Married Couples allowance available of £696.50, if more then for every £2 above £22,900, your allowance is reduced by £1. The minimum the allowance can be tapered to is £267. This figure is then subtracted from the final tax due.

Effect of claimant's income on Married Couple's Allowance
(Examples use 2008/2009 Rates)

• If your income is over £21,800 HM Revenue & Customs (HMRC) will reduce the Married Couple's Allowance.
• The amount of the reduction is worked out as follows:
• HMRC deduct half of your income - £1 for every £2 - that's over the limit from your age-related Personal Allowance, until the basic level of Personal Allowance is reached
• they take anything that's left off the Married Couple's Allowance, until they reach the minimum amount - you'll always get the minimum Married Couple's Allowance (10 per cent of £2,540) - This changes in 2010/2011 (see below for more)
• if your income doesn't reduce the age-related Personal Allowance to the basic level, then HMRC don't reduce the Married Couple's Allowance

Example - under 75

You're 74, married and have taxable income of £18,000:

• your taxable income is £18,000
• your tax-free Personal Allowance is £9,030 (the age-related Personal Allowance for people aged 65 to 74)
• HMRC subtract your tax-free allowance (£9,030) from your taxable income (£18,000), that leaves you with taxable income of £8,970 - your tax bill on this income is £1,794 (£8,970 x 20 per cent)
• they then use your Married Couple's Allowance to reduce your tax bill
• your Married Couple's Allowance is £653.50 (10 per cent of £6,535 - the maximum rate for under 75s)

Your tax bill is reduced to £1,140.50 (£1,794 - £653.50).

Example - 75 or over

You're 77, married and have taxable income of £18,000:

• your taxable income is £18,000
• your tax-free allowance is £9,180 (the age-related Personal Allowance for 75s or over)
• HMRC subtract your tax-free allowance (£9,180) from your taxable income (£18,000), that leaves you with taxable income of £8,820 - your tax bill on this income is £1,764 (£8,820 x 20 per cent)
• they then use your Married Couple's Allowance to reduce your tax bill
• your Married Couple's Allowance is £662.50 (10 per cent of £6,625 - the maximum rate for 75s or over)  

Your tax bill is reduced to £1,101.50 (£1,794 - £662.50).

Example - Under 75 but income over allowance limit

You're 74, married or in a civil partnership and have taxable income of £29,400. HMRC subtract the income limit (£21,800) from your taxable income (£29,400) - this shows that you're £7,600 over the limit.

They take half of this (£3,800) off your allowances like this:

• first HMRC reduce your age-related Personal Allowance of £9,030 by £2,995 to the minimum basic Personal Allowance of £6,035 - this leaves £805 (£3,800 - £2,995)
• next they subtract £805 from the higher Married Couple's Allowance entitlement (£6,535) bringing it down to £5,730
• your Married Couple's Allowance is £573 (10 per cent of £5,730)

£573 is the amount by which HMRC will reduce your tax bill.

Example - Over 75 but income over allowance limit

You're 77, married or in a civil partnership and have taxable income of £29,400. HMRC subtract the income limit (£21,800) from your taxable income (£29,400) - this shows that you're £7,600 over the limit.

• They take half of this (£3,800) off your allowances like this:
• first HMRC reduce your higher age-related Personal Allowance of £9,180 by £3,145 to the minimum basic Personal Allowance of £6,035 - this leaves £655 (£3,800 - £3,145)
• next they subtract £655 from the higher Married Couple's Allowance entitlement (£6,625) bringing it down to £5,970
• your Married Couple's Allowance is £597 (10 per cent of £5,970)

£597 is the amount by which HMRC will reduce your tax bill.

Blind Persons Allowance

If you have a Personal Allowance and are registered blind, you can claim a blind persons allowance.

Pensions Tax Relief

We provide three methods to calculate pension contributions and the associated tax reliefs.

Currently available methods are:

• Employers Pension Scheme
• Private Pension Plan
• Salary Sacrificed Pension Scheme

Employers Pension Scheme (Occupational)

Pension contributions made into an Occupational Scheme are taken from your salary before the tax is calculated. This therefore saves you income tax at source at your highest tax rate. National Insurance Contributions are still made based upon your full salary including the pension contribution amount. Our salary calculator uses this option as the default for pensions with others selectable.

Some employers may however use the private pension plan method of making your pension contributions, in which case you receive the basic rate tax relief at source, by having your basic rate tax band adjusted to account for your contribution amount. If you are a higher rate tax payer, you will need to claim higher rate tax relief by contacting your local tax office and adjusting your tax code if possible, or by submitting a Tax Return to claim the relief at the end of the tax year.

Private Pension Plan

With a Private Pension, your Pension contributions are not deducted from your salary when calculating income tax. Instead, your basic rate band (the maximum amount at which you pay basic rate income tax) is extended by the amount of your pension contributions - effectively giving you basic rate tax relief on your income tax contribution.

Below are examples of how a private pension contribution affects the calculation of income tax for basic rate, higher rate and marginal rate taxpayers.

The following examples are based on 2009/2010 tax rates

Basic rate taxpayer

Ray earns £20,000 a year and pays a highest tax rate of 20%. He is entitled to basic rate tax relief on his personal pension contribution of £240 a month.

Monthly payment	£240
Tax relief reclaimed by personal pension provider	£60 (20% of £300)
Total invested each month	£300

Higher rate taxpayer

Sam earns £80,000 a year and pays a highest tax rate of 40%. He makes a personal pension contribution of £960 a month.

Monthly payment	£960
Tax relief reclaimed by personal pension provider	£240 (20% of £1,200)
Total invested each month	£1,200
Additional tax relief claimed in Sam's self-assessment return*	£240 (20% of £1,200)

As Sam pays higher rate tax on the total amount he contributes, he can claim additional tax relief on that amount. The additional tax relief is the difference between higher rate tax relief and the basic tax relief already reclaimed by his personal pension provider on his behalf.

Total invested for the year	£14,400 (£1,200 x 12 months)
Additional tax relief claimed in Sam's self assessment return	£2,880 (20% of £14,400)
Sam's total tax relief for the year will be	((£240 x 12) + £2,880) = £5,760

Marginal rate taxpayer

Jo earns £48,000 a year and pays a highest tax rate of 40%. She makes a personal pension contribution of £720 a month.

Monthly payment	£720
Tax relief reclaimed by personal pension provider	£180 (20% of £900)
Total invested each month	£900

As Jo's total yearly pensions contribution (£900.00 x 12 = £10,800) is greater than the amount of her earnings which are subject to higher rate tax, she can only claim additional tax relief on the part of her contribution which is subject to higher rate tax.
The additional relief available to Jo is the difference between the two calculations below.

Without a pension contribution

If Jo had made no personal pension contributions in the year, her income tax liability would have been calculated as follows:

Jo would have paid tax on income above her personal allowance of £6,475
She would have paid a basic rate tax (20%) on the next £37,400
She would have paid a higher rate tax (40%) on any remaining income.

Income above personal allowance =	£48,000 - £6,475 = £41,525
Income above basic rate band =	£41,525 - £37,400 = £4,125

So Jo's tax bill would have been:

£37,400 x 0.20	£7,480
£4,125 x 0.40	£1,650
Total	£9,130

With a pension contribution

Because Jo contributes a total of £10,800 to her personal pension in the year, her income tax liability will be calculated as follows:
Her tax bands are the same except that her basic rate band is increased by the total yearly amount invested in her personal pension. So she'll pay basic rate tax on up to £37,400 + £10,800 = £48,200

Income above personal allowance =

£48,000 - £6,475 = £41,525

The remainder is less than Jo's revised basic rate band, so she'll pay basic rate tax on it all.

So Jo's tax bill will be:

£41,525 x 0.20

£8,305

So Jo can claim additional tax relief of £9,130 - £8,305 = £825 in her tax return.
So her total tax relief for the year will be (£180 x 12) + £825 = £2,985

Salary Sacrifice

To explain how salary sacrifice works, the examples below all assume an employee on £24,000 salary contributing 5% net (£1,200 pa or £100 pm net) to a pension.

Traditionally pensions have been promoted as a very tax efficient savings vehicle. This has been in the of a Net Pay Scheme such as a personal pension or stakeholder pension, however to bridge the savings gap employees and employers must implement schemes that encourage greater savings.

A Salary Sacrifice Scheme is one option that goes some way to achieving this with minimal financial cost to both employee and employer.

Net Pay Scheme

Where an individual makes a personal contribution to a pension plan, the Government gives a tax incentive. This also includes a group personal pension or group stakeholder pension scheme and the following calculation shows how a £100 pm contribution (or £1,200 pa) is 'grossed up' and invested in the pension plan.

Pension paid by employee:

	£	£
Net pension		1,200
Add: 22% tax on gross	338
Gross pension		1,538
Increase in pension		28.21%

This 'grossing up' means an extra 28.21% is invested in the plan immediately for every contribution made, or £128.21 pm rather than £100 pm.

This is how the Government encourages employees to invest in a pension for their retirement and is effectively a return of income tax foe all money invested in a pension plan.

Salary Sacrifice Scheme

As an alternative to the Net Pay Scheme, the employee can opt for a salary sacrifice scheme. Under this arrangement the employee opts to sacrifice part of their gross income for a corresponding pension contribution.

This pension contribution is treated as an employer's contribution by HRMC. In order to maintain the employees take home income, the amount of salary they must sacrifice would be £149 pm (or £1,791 pa) based on a basic rate tax salary of £24,000 pa as follows:

Pension paid by employer:

	£	£
Net pension	1,200
add: NI employee savings	197
add: Income tax savings	394
Salary sacrifice		1,791
add: NI employer savings	229
Gross pension		2,020
Increase in pension		68.35%

In the above example the employer invests in the employee's pension plan the salary sacrifice amount of £1,791 and the employer National Insurance savings of £229 making a gross pension contribution of £2,020 pa.

This results in an extra 68.35% being invested in the plan immediately for every contribution made, or £168.33 pm rather than £100 pm for a basic rate taxpayer. For a higher rate taxpayer the increase is 91.2%, or £191.20 pm rather than £100 pm.

This increase is 31.34% higher per contribution than a Net Pay Scheme and the employee's take home income remains unchanged.


Income unchanged

When an employee opts for a salary sacrifice scheme rather than a Net Pay Scheme they sacrifice part of their gross income for a corresponding pension contribution paid by the employer.

This means that if employees are contributing to a pension, they will stop the contributions and the employer will pay them instead.

The following example is based on an employee contributing £100 pm (or £1,200 pa) net. The employee's gross income will reduce from £24,000 pa to £22,209 pa.

Taxation is based on rates and allowances for the 2004/05 tax year.

There is no change in take home income because although under the Salary Sacrifice Scheme gross salary has reduced so has income tax, NI contributions and the responsibility for pension payments is now the employers.

Net income is the same at £16,618 per annum even though gross income has been reduced by £1,791 per annum.


Pension increase

In a traditional Net Pay Scheme the employee pays their pension contributions out of their net pay and this is 'grossed up' when invested into the pension plan.

The employer may also choose to contribute. However, in a Salary Sacrifice Scheme the employer pays into the employees pension plan as follows.

In a Salary Sacrifice Scheme the employer invests the salary sacrificed by the employee, £1,791 pa and also the employer NI savings of £229 pa. The employer's NI is saved because the employer pays a smaller gross salary to the employee, £22,209 instead of £24,000 in this example.

This means the gross pension increases from £1,538 per annum in a Net Pay Scheme to £2,020 per annum for the Salary Sacrifice Scheme, an increase of 31.34% for every contribution made.

Income Tax

The standard bands issued by HMRC are used when calculating income tax.

Except in a situation where there is a Personal Pension Contribution (not salary sacrificed).

In this case, the Grossed Up Pension Contribution Total is added to the Basic Rate Band before calculating the tax due. This effectively increases the amount of your pay that is taxed at the basic rate.

Below is an overview table of the bands involved, but for better clarity, our income tax interactive calculator allows you to enter a calculation and see bands change in real-time.

Example for 2013/2014:

£50,000 Gross Income

£9,440 Personal Allowance, so taxable pay is £40,560

£0 - £32,010 taxed at 20% = £6,402

£32,010 - £40,560 taxed at 40% = £3,420

Total income tax = £9,822

National Insurance

We calculate both employers and employee (class 1) national insurance rates as well as Class 2 and Class 4 Contributions if you select you are self employed or working in CIS.

We can calculate national insurance based upon any NIC Letter Category for 2009 onwards, otherwise the standard 'A' letter category is used.

If you at or above state pension age and have ticked the SPA box the calculator will make you exempt of all personal national insurance contributions, but if you are an employee your employer will continue to be liable to Employers National Insurance Contributions. According to HMRC, National Insurance Applies only to employees who are aged 16 or over. Employee contributions stop at State Pension age, but employer contributions continue for as long as the employee continues to work.

If you are working in CIS, then there are no employers ni's, but you pay class 4 self employed nics. You also pay a weekly class 2 contribution by direct debit.

These are paid at the end of the tax year to settle your tax return.

Males over 65 and Females over 60 did not incur national insurance contributions, however with the state pension ages now changing over this decade, the default ages are no longer set in stone. Use our state pension age calculator to find out when your state pension age is.

You can now also select your NIC Letter when calculating. The following list explains the NIC Letters we support and what they mean. Please note, NIC Letter calculations can only be done for tax year 2009 onwards - if you are calculating for any tax year before this, our system will default to the standard Letter A.

NIC A - Standard Rate

NIC B - Married Woman's and Widow's Reduced Rate

NIC C - Over State Pension age (not contracted-out/contracted-out)

NIC D - Contracted-out Salary Related - standard rate

NIC E - Contracted-out Salary Related – reduced rate

NIC F - Contracted-out Money Purchase - standard rate

NIC G - Contracted-out Money Purchase – reduced rate

NIC J - Deferment (previously not contracted-out category C)

NIC L - Contracted-out Salary Related – deferment (previously contracted-out category C)

NIC S - Contracted-out Money Purchase – deferment

NIC X - No liability (all years)

Tax Refunds

For CIS, your tax refund figures are made from the tax due, plus class 4 nics and class 2 nics which you should pay if normally self employed.

As you are CIS however, you will be taxed 20% at source which results, in most cases, overpayment of tax and you miss out on your tax free personal allowance. This can be worth £1295 where the allowance is £6475. You do need to pay NIC's though as these are due but not deducted at source.

For PAYE income, we deducted the figure you provide from the figure we achieve to see if there is a difference.