What Can You Earn Before Paying Tax

How much can you earn before paying tax? 

Taxes are one of the most certain things in life so it’s important to make sure you know the ins and outs of them but as we all know, sometimes it can be a little confusing. One question which might come up a lot when having a money conversation about earning is “how much can you earn before paying tax?” and we’re here to answer it. 

If you’re stepping into the job market for the first time, juggling part-time work as a student or balancing a gig on the side of raising a family, this article is for you. Remember, confidence and knowledge is key to a healthy relationship with your finances so let’s talk about the UK tax system, your personal allowance and how you can take control of them. 

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First up, what is a personal allowance?

Your personal allowance is the amount of income you can earn each tax year — which is from 6th  April to 5th April in the UK — without having to pay tax on it. The standard allowance here is £12,570 so unless you earn more than that, you won’t have to pay a penny on income tax. 

There are some circumstances like marriage, blindness, and if you have an income of over £100,000 which can make your personal allowance higher or lower. Some income is also tax-free, so make sure you check out the UK government website for all the up to date info.

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What happens if you earn more?

It’s great when you start earning more money but it does mean that if your personal income goes over the threshold of £12,570, you have to start paying income tax. Here are the rates for the standard personal allowance:

• If you get paid anywhere between £12,571 and £50,270, you’ll be taxed 20% of your earnings. 
• If you get paid anywhere between £50,271 and £125,140, you’ll be taxed 40%.
• For anyone above £125,140, it’s 45%. 

Did you know? Scotland has different tax rates. Check them out here. 

Let’s break down the first tax threshold as an example. If you were to earn £30,000 in a tax year, you are entitled to £12,570 of that as your personal allowance — the rest gets taxed at 20%. This means £3,486 would come out of your earnings and you end up with £26,514.

Most of the time, your employer will organise it for you but if you are self-employed, you may need to stay on top of it. It’s also worth noting that these calculations don’t include other deductions like national insurance, student loans and pensions. 

If you have an employer and you’re not sure how much you’ll get taxed this year, you can check it here. 

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Tips to manage your tax

1. Check your tax code: Make sure your employer uses the correct tax code so you're taxed appropriately.
2. Keep records: Maintain a record of your earnings, especially if you have multiple jobs or an income which changes in amount.
3. Use HMRC tools: The HM Revenue & Customs website and app offers calculators to help you estimate your tax obligations.

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