As of today, 6th April 2016, you will be able to earn £400 a year more before you need to start paying income tax! The Personal Allowance is the amount of income you are allowed to earn each year without having to pay any tax – and today the figure is rising from £10,600 to £11,000, an increase of almost 4 percent.
The increase was announced in Budget 2015 by Chancellor George Osborne, effectively giving around 29 million people in the UK a pay rise. It was also announced in Budget 2016 a few weeks ago that the Personal Allowance will rise a further £500 to £11,500 next April.
Any earnings above your personal allowance (£11,000) are subject to income tax. The first £32,000 of earning above your personal allowance are taxed at 20%; £32,000 – £150,000 at 40% and more than £150,000 at 45%. See the table below.
|Basic*||20%||+ £0 -£32,000||+ £0 – £31,785|
|Higher||40%||+ £32,001 to £150,000||+ £31,786 to £150,000|
|Top||45%||+ £150,001 +||+ £150,001 +|
Everyone earning less than £100,000 is entitled to the £11,000 Personal Allowance for the current tax year. If you are lucky enough to be earning more than £100,000 a year, then the Personal Allowance drops by £1 for every extra £2 of income.
‘Raising The Personal Allowance’
Commenting in last month’s Budget on the increases to the Personal Allowance for this year and next, Mr Osborne said:
“When I became Chancellor, the tax-free personal allowance was less than £6,500. In two weeks’ time it will rise to £11,000. We committed that it would reach £12,500 by the end of this Parliament. And today we take a major step towards that goal. From April next year, I am raising the tax-free personal allowance to £11,500. That’s a tax cut for 31 million people. It means a typical basic rate taxpayer will be paying over £1,000 less income tax than five years ago. And it means another 1.3 million of the lowest paid taken out of tax altogether.”
You can get a detailed breakdown of all of the tax and tax credit rates and thresholds for 2016-17 from this page of the GOV.UK website - and we’ve also got our own guide about tax matters for students too.
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