WHAT IS THE PERSONAL TAX ALLOWANCE FOR 2022/23?

WHAT ARE TAX-FREE EARNINGS?

Tax-free earnings are exactly what they sound like – income you do not have to pay taxes on as you earn it. This includes National Insurance and Income Tax. Each of us has a tax-free allowance in which you do not pay tax or NI, and any earnings above this allowance are subject to different tax rates depending on how much you earn.

Knowing what your tax-free allowance is and which tax bracket your earnings are above it can be complex, so we have broken down the tax allowances and which rate of tax your earnings could fall into below for you.

PERSONAL TAX ALLOWANCE 2022/23

As we type this blog, the current tax-free allowance for the tax year from 6th April 2022 to 5th April 2023 stands at £12,570. This is the same tax allowance as 2021/22 and has been frozen until 2026.

Breaking this down into weekly/monthly means you can earn:

  • £242 per week tax-free.
  • £1,048 per month tax-free.

This amount could fluctuate when broken down due to how cumulative tax codes work, but overall if your pay is stable, the amount of tax you pay should stay the same.

WHAT ARE THE TAX BANDS FOR 2022/23?

Any income you earn above your allowance will be subject to tax, but how much tax is due depends on how much you earn overall and where you live in the UK.

It is worth mentioning that the below tax allowances are the standard ones. Ultimately your tax-free allowance is set by your tax code which HMRC could change if you owe them taxes or they owe you a tax refund.

If you live in England, Northern Ireland and Wales, your earnings will fall into three tax bands:

  • 20% basic-rate: £12,571-£50,270
  • 40% higher-rate: £50,271-£150,000
  • 45% additional-rate: £150,000+

If you live in Scotland earnings fall into:

  • 19% starter-rate: £12,571-£14,732
  • 20% basic-rate: £14,733-£25,688
  • 21% intermediate-rate: £25,689-£43,662
  • 41% higher-rate: £43,663-£150,000
  • 46% top-rate: £150,000+

In addition to the above tax rates, if you earn over £100,000 per year, your tax allowance is reduced by £1 for every £2 you earn over £100,000. This effectively means if you earn over £125,140, you’ll have to pay income tax on all of your income.

In addition to the tax-free allowance, other tax allowances can be applied. Now it is critical that you seek an accountant’s advice if you have secondary income in addition to a full/part-time job. This is because it is not as simple as it seems when working them out – and not all are cumulative allowances, so they need to be calculated correctly.

  • Tax-free savings allowance – £6,000
  • Rent a room tax allowance – £7,500
  • Property allowance – £1,000
  • Trading allowance– £1,000
  • Marriage allowance transfer – £1,260
  • Capital gains allowance – £12,300
  • Dividend allowance– £2,000
  • National Insuranceallowance – £12,570

TAX ALLOWANCES SUMMARY

As you can see, there is a varied range of tax allowances for 2022/23, which is why it is often better to seek the advice of a qualified accountant, more so if you have secondary income outside of paid employment. The political landscape is also playing a factor in these tax rates, so these rates are correct at the time of writing – however, they could soon change!

If you need any assistance with tax-free allowances for personal or company tax, speak to the expert team here at RJF Accounting! We help business owners of all shapes and sizes make sense of their taxes and help them stay on the right side of HMRC whilst maximising your tax efficiencies!