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The Higher Rate tax band is a tax rate through which you pay Income Tax. You pay the higher rate on the portion of your income between £50,000 to £150,000. The tax rate itself is 40% for this portion of your taxable income.
To understand tax bands, you should first understand how HMRC looks at your income. Use the below table to take a look at how it’s split in the 2020/21 tax year:
|Up to £12,500||0%||Personal Allowance|
|£12,501 to £50,000||20%||Basic Rate|
|£50,000 to £150,000||40%||Higher Rate|
|over £150,000||45%||Additional Rate|
When you earn less than £12,500 every year, this income is tax-free. It’s known as the Personal Allowance. Any income that you earn above this is taxed at the above rates. But it’s important to remember that the rate that you’re taxed is segmented.
What does this mean? Here’s an example based on earning £64,000 per year:
Use our Income Tax calculator to try it in action.
You pay the above tax rates whether you’re employed and earning a salary or self-employed and earning money from multiple gigs.
When you’re self-employed, you pay via a tax return.