Income Tax and National Insurance

Unsure about Income Tax and National Insurance? Don’t know what the National Insurance threshold is? We explain how the tax system works and what to do if you think you’re overpaying.

Should I pay any Income Tax?

Income Tax, as its name suggests, is a tax on your income.

Jump down to ‘How much Income Tax will I pay?’ to find out what you’re liable for.

What is a Personal Allowance?

Everyone, including students, has something called a Personal Allowance – the amount of money you’re allowed to earn each tax year before you pay Income Tax.

The tax year runs from 6 April to 5 April, and for the 2017-18 tax year the standard Personal Allowance is £11,500. If you earn less than this, you shouldn’t have to pay any Income Tax.

The amount of the Personal Allowance you receive is set by the government and can change from one tax year to the next.

Check the most up-to-date Personal Allowance figures on GOV.UK.

Marriage Allowance

Married couples and those in civil partnerships can transfer up to £1,150 of personal allowance (10% of the £11,500 personal allowance for 2017/18) to their partner for 2017/18 and is sometimes known as the Marriage Tax Allowance.

You might be eligible for this if:

  • You are married, or in a civil partnership.
  • One of you earns less than the Personal Allowance and the other is a basic rate taxpayer.
You can find more information on GOV.UK.

Married Couples Allowance

If you or your partner were born before 6 April 1935 you might be eligible for Married Couple’s Allowance, which might reduce your tax bill by more than the Marriage Allowance.

For marriages before 5 December 2005, the husband’s income is used to work out Married Couple’s Allowance although it can be transferred to the wife. For marriage and civil partnerships after this date, it’s the income of the highest earner.

Tax relief for the Married Couple’s Allowance is given at the rate of 10%. This means that 10% of the allowance is given as a deduction from the individual tax liability.

Find out more on GOV.UK.

What is Income Tax used for?

Your Personal Allowance is taken off your earnings before you start paying Income Tax.

Income Tax is collected by HMRC on behalf of the government. It’s used to help provide funding for public services such as the NHS, education and the welfare system, as well as investment in public projects, such as roads, rail and housing.

How much Income Tax will I pay?

From April 2018, the standard personal allowance will increase to £11,850, with the higher rate tax threshold will increase to £46,350.

Income Tax is made up of different bands. This means that as your income increases, so too does the amount of Income Tax you pay.

It’s an attempt to make paying Income Tax as fair as possible, so that those who earn the most contribute the most.

The table below shows the rate of Income Tax you pay on anything over your Personal Allowance.

Rate 2017-18
Basic rate: 20% £0 to £33,500
People with the standard Personal Allowance start paying this rate on income over £11,500
Higher rate: 40% £33,500 to £150,000
People with the standard Personal Allowance start paying this rate on income over £45,000
*Additional rate: 45% Over £150,000

*For Scottish tax-payers, the basic rate is £31,500.

If you think you might have had Income Tax wrongly taken from your earnings, fill in the form from Her Majesty’s Revenue and Customs (HMRC) to have it paid back to you.

National Insurance

National Insurance contributions help to build your entitlement to certain state benefits, such as the State Pension and Maternity Allowance.

You begin paying National Insurance once you earn more than £157 a week (this is the figure for the 2017-18 tax year).

The National Insurance rate you pay depends on how much you earn:

  • 12% of your weekly earnings between £157 and £866
  • 2% of your weekly earnings above £866

Your National Insurance contributions will be taken off along with Income Tax before your employer pays your wages.

Find out more about your National Insurance contributions on GOV.UKopens in new window.

What do National Insurance payments pay for?

Your National Insurance payments go towards state benefits and services, including:

  • The NHS
  • The State Pension
  • Unemployment benefits
  • Sickness and disability allowances

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