How Much Can You Earn Before Paying Tax

How Much Can You Earn Before Paying Tax?

07/04/2021Personal Tax , Tax Saving Tips

You are liable to pay income tax when your gross income reaches a certain threshold. But, a personal allowance might save you from income tax to some extent. Moreover, you need to know about the latest changes in income tax rates and thresholds of income, after the start of the new tax year (6th April 2021). In this blog, we’ll also discuss them all and you’ll get to know how much can you earn before paying tax.

Meanwhile. if you are looking for someone to reduce your income tax liability using legal practices, no one can do it except our accountants!

Personal Allowance:

The personal allowance is an amount from your earning that is given to you tax-free by the government. This allowance may change from year to year. Currently, the personal allowance is £12,570 for the tax year starting from April 6 2021 to April 5, 2022. This allowance may differ if you’re availing other allowances or earning a lot of money. If you are earning below £12,570, you are free from the income tax.

The marriage allowance lets a spouse transfer the unused allowance to his/her partner. Those people who are suffering from a sight issue can avail Blind person’s allowance.

Need more details on personal allowances during Covid crises, reach out to us!

Current Income Tax Rates:

The threshold of different category taxpayers has increased recently after 6 April 2021. The basic rate taxpayer will be going to pay 20% of their income tax from earnings above £12,571 up to £50,270. Along with that, the threshold for high rate taxpayers earning income from £50,271 up to £150,000, they pay 40% of the income tax. Additional rate taxpayers have to pay 45% of income tax on income above £150,000.

You pay income tax at the end of the tax year through PAYE (Pay As You Earn) or Self-assessment tax returns.

To find out the answer to how much can you earn before paying tax, you need to look at your income tax category. You can add the income tax, you have paid to HMRC, with your net income to find out your gross income (income without excluding taxes).

Key Takeaway: Chancellor Rishi Sunak has announced that the income tax threshold of the current year will remain the same till 2026.

How to Check Tax-free Personal Allowance?

You can find out your tax-free personal allowance through your tax code that is generally mentioned on your payslip. If you have found letter L on your payslip, it means you are aviling the tax-free personal allowance. Instead of it, if you found letter M on your payslip, it implies that you have transferred your personal allowance to your spouse using a marriage allowance. While letter N indicates the opposite that you have received your spouse’s personal allowance.

Quick Sum Up:

After knowing how much can you earn before paying tax, you can also avail an income tax relief to pay less amount of income tax (conditions applied). However, you are liable to pay income tax earned through dividends, interest, state benefits, salary, etc if your total income from various sources exceeds the personal allowance threshold.

Worried about the high-income tax rates, contact our accountants for help!


Disclaimer:  The blog is written for informational purposes only. For support contact our accountants.

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