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Wage taxes

  • 2 min read

Wage taxes are taxes that we pay from our income, although it’s not a formal term in the accounting world.

In the UK, the wage taxes that we pay are Income Tax and National Insurance.

Income Tax is based on what we earn yearly. You have to pay it whether you’re employed or self-employed. The rate that you pay is based on the below table:

Take a look at the HMRC website if you want to keep up to date with Income Tax rates.

Income Tax rate
Up to £12,570 0% Personal allowance
£12,571 to £50,270 20% Basic rate
£50,271 to £150,000 40% Higher rate
over £150,000 45% Additional rate

What kind of wage taxes are National Insurance payments?

There are six types of National Insurance payment:

Classes 1, 1A, 1B, 2,3 and 4 National Insurance. By paying them, we get access to state-provided benefits like the Job Seeker’s Allowance, the Marriage Allowance, the state pension and more.  

If you’re self-employed, you have to pay Class 2 and Class 4 National Insurance. For those who are employed, you pay Class 1 National Insurance through PAYE (i.e. if you are salaried).

Take a look at the table below to see the different classes of National Insurance and how much you owe for each in the 2022/23 tax year:

NI class Who pays How is it paid How much is it
Class 1 Employees earning more than £11,909 a year Your employer deducts it through PAYE 12% (or 2% if you earn over £50,270 a year)
Class 1A or 1B Employers for employees earning over £11,909 a year Your employer pays it on top of your Class 1 14.53%
Class 2 Self-employed people earning over £6,725 a year Through a Self Assessment tax return Flat £164 per year
Class 3 Voluntary contributions – you can pay them to fill gaps in your NI record Through a Direct Debit £15.85 per week
Class 4 Self-employed people earning over £11,909 a year Through a Self Assessment tax return 9% (or 2% if you earn over £50,270)

However, following the 2022 Spring Statement, Sunak announced that the Class 1 and Class 4 National Insurance threshold will be increased by £3,000 from July 2022. As a result, the new NI threshold will be £12,570, matching the Personal Allowance. But you’ll still owe Class 2 National Insurance if you’re self-employed.

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