Next week (6 April) is a new tax year, and this means a fresh start for your finances. If you’re on the National Living Wage or National Minimum Wage, it means you’ll get a pay rise. It might also mean you get a new holiday allowance at work.
And it’s also likely to mean the amount of Income Tax you pay will change. Don’t worry – this isn’t something you need to pay yourself if you’re an employee but it still comes off your wages. You’ll probably get a new tax code too, so let’s see how to check how your Income Tax will change.
Check your new tax code
First off, you need to check your tax code for 2017/18. You should be able to find this on your next pay cheque.
Most employees in the UK will see the 1150L tax code – this is if you only have one job and earn less than £32,001 in a year. It gives you a tax-free Personal Allowance of £11,500 for the 2017/18 tax year. You’ll only start paying Income Tax for everything you earn over this threshold.
What will you pay?
But how much Income Tax will you actually pay off your wages? Well, the basic rate of Income Tax is 20% for everything over the tax-free Personal Allowance – you’ll pay the basic rate if you earn under £32,001 a year.
So for example, if you earn £20,000 a year, you’ll get the first £11,500 of this tax free – meaning you’ll pay no Income Tax on this. For the remaining £8,500, you’ll pay 20% of this as Income Tax – that’s £1,700 a year. This means that over the year, the actual amount you’ll get after Income Tax is £18,300.
Of course, this doesn’t include National Insurance – for most people, this is 12% of everything you earn over £155 in a week. And if you’ve been a student, you might also have to make student loan repayments, depending on when you started university and how much you earn.
One of the main reasons why the Income Tax you pay might be different to this is if you work two or more jobs. If this is the case, your tax code for your second job will be BR and you’ll pay 20% Income Tax of everything you earn.
This means that if you earn £10,000 a year from your second job, you’ll pay 20% of this as Income tax – that’s £2,000 a year. So you’ll actually get £8,000 a year after the tax.
Your first or main job will work in the same way as if you only had one job – you’ll still get a tax-free Personal Allowance of £11,500 for the year.