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The UK Personal Allowance: how does it work?

TaxScouts -> Guides

We've updated this guide on 12th February 2021

The Personal Allowance applies to all UK taxpayers. For the 2020/21 tax year it’s £12,500.

What can decrease your Personal Allowance

If you earn over £100,000:

  • it goes down by £1 for every £2 that your adjusted net income is above £100,000
  • this means that you lose this allowance entirely if your income is £125,000 or above.

However, you can reduce your adjusted net income by paying into private pensions and charity donations.

How much do I get?

Use this income tax calculator:

Annual self-employment income
£
Self-employment expenses
£
Select tax year
Income after tax
£37,986
Income tax
£7,300
NI
£3,714
Total income tax
£7,300
£12,500 taxed at 0%
£36,500 taxed at 20% : £7,300
Total NI contributions
£3,714
Class 2 NI: £159
Class 4 NI at 9% : £3,555
What you’re left with
£37,986

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How your income tax is calculated

As a self-employed you have to pay your income tax and national insurance contributions yourself during your annual self assessment. Our calculator helps you quickly assess how much payment is due.

However you may be eligible for a tax refund when:

  1. You already made tax payments for the year but your annual income ended up smaller than planned
  2. You have done things that qualify for tax relief (made private pension contributions, give to charity, etc)

In your case when you earn £49,000:

Income tax breakdown

You pay no income tax on first £12,500 that you make

You pay £7,300 at basic income tax rate (20%) on the next £36,500

What can increase it

Depending on your situation you can add one (or both) of these allowances to it:

Looking for tax help?

Or see our Guides, Calculators or Taxopedia

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