An informal and unofficial guide to the different income and salary brackets and thresholds at which different things start to happen, what to watch out for and how to maximise your salary. This applies almost entirely to PAYE employees only. The previous year version of this page can be found here.
Congratulations! You are part of the tax system, but do not currently need to pay any tax or national insurance.
As a PAYE employee you will now have a tax code. Tax codes are used by your employer to calculate the amount of tax that should be deducted from your wages or pension before they hit your bank account.
Remember: Each income stream you have (jobs, private pensions) will have different tax codes. Remember to check them all!
You will begin to accrue NI credits without paying any NI. See https://www.gov.uk/national-insurance/what-national-insurance-is-for for information on what benefits you accrue with NI credits.
Further information on NI rates can be found on the rates and allowances page on the gov.uk website.
Threshold increased (2.5%) by £156 from £6,240 in 2021/22.
You will begin to pay National Insurance (13.25%) on everything between £797 and £4189 a month.
The only way to avoid paying this is to utilise salary sacrifice to effectively lower your salary. Any other form of pension contributions (relief at source or net pay arrangements) will continue to incur NI on them.
Further information on NI rates can be found on the rates and allowances page on the gov.uk website.
National Insurance rate increased (10.5%) by 1.25% from 12% in 2021/22 to 13.25% on NI incurred between Apr 6 and Nov 5. National Insurance rate decreased (9.5%) by 1.25% from 13.25% in Apr 6 - Nov 5 of 2022 to 12% on NI incurred between Nov 6 and the end of the tax year.
You are now a basic rate tax payer and your marginal tax rate is now 20%. You will pay income tax at 20% on everything above the basic rate threshold, but will continue to receive a personal allowance on which you pay nothing.
You can use a variety of methods to avoid paying tax at this point (up to the higher rate band):
You will also begin to pay National Insurance on everything between £797 and £4189 a month. Your NI rate will be 13.25% for tax accrued between Apr 6 - Nov 5 and 12% for tax accrued between Nov 6 to the end of the tax year.
The only way to avoid paying this is to utilise salary sacrifice to effectively lower your salary. Any other form of pension contributions (relief at source or net pay arrangements) will continue to incur NI on them.
Further information on income tax rates and tax bands can be found on https://www.gov.uk/income-tax-rates and further information on NI rates can be found on the rates and allowances page on the gov.uk website.
Income Tax rate frozen from 2021/22.
National Insurance rate increased (10%) by 1.25% from 12% in 2021/22 to 13.25% on NI incurred between Apr 6 and Nov 5.
National Insurance rate decreased (9%) by 1.25% from 13.25% in Apr 6 - Nov 5 of 2022 to 12% on NI incurred between Nov 6 and the end of the tax year.
You are no longer eligible for the £5,000 personal savings allowance and will have the usual allowance of £1,000 tax-free interest on savings as a basic rate tax payer.
You will begin to pay any Plan 1 Student Loan debt. You will repay 9% of everything earned above £20,185 - earn less and you don't repay. This is effectively a 9% addition to your marginal tax rate.
The only way to avoid paying this is to utilise salary sacrifice to effectively lower your salary. Any other form of pension contributions (relief at source or net pay arrangements) will continue to incur student loan repayments on them.
Further information on student loan repayment thresholds and rates can be found on https://www.gov.uk/repaying-your-student-loan.
Plan 1 Student Loans treshold increased (5%) by £999 from 2021/22.
You will begin to pay any postgraduate loan debt. You will repay 6% of everything earned above £21,000 – earn less and you don't repay. This is effectively a 6% addition to your marginal tax rate and is additive to any other student loan repayments you need to make.
Once you're eligible to start repaying, you will only actually repay if you're earning above £1,750 a month or £404 per week – equivalent to £21,000 a year. In Scotland, you need to be earning over £25,000 a year, and in Northern Ireland, it's just £19,895 a year.
The amount you repay for postgraduate loans is 6% (9% in Scotland and Northern Ireland) of everything above that, this is lower than undergraduate loans which are set at 9% above the threshold.
The only way to avoid paying this is to utilise salary sacrifice to effectively lower your salary. Any other form of pension contributions (relief at source or net pay arrangements) will continue to incur student loan repayments on them.
Further information on student loan repayment thresholds and rates can be found on https://www.gov.uk/repaying-your-student-loan.
Postgraduate Student Loans treshold frozen from 2021/22.
You will begin to pay any Plan 4 Student Loan debt. You will repay 9% of everything earned above £25,368 - earn less and you don't repay. This is effectively a 9% addition to your marginal tax rate.
The only way to avoid paying this is to utilise salary sacrifice to effectively lower your salary. Any other form of pension contributions (relief at source or net pay arrangements) will continue to incur student loan repayments on them.
Further information on student loan repayment thresholds and rates can be found on https://www.gov.uk/repaying-your-student-loan.
You will begin to pay any Plan 2 Student Loan debt. You will repay 9% of everything earned above £27,295 - earn less and you don't repay. This is effectively a 9% addition to your marginal tax rate.
The only way to avoid paying this is to utilise salary sacrifice to effectively lower your salary. Any other form of pension contributions (relief at source or net pay arrangements) will continue to incur student loan repayments on them.
Further information on student loan repayment thresholds and rates can be found on https://www.gov.uk/repaying-your-student-loan.
Plan 2 Student Loans treshold frozen from 2021/22.
Your NI rate will drop to 3.25% on any earnings above above £4189 a month, you will continue to pay 13.25% NI on the amount between the primary threshold and upper earnings limit. This is calculated and paid per pay-period and isn't assessed holistically at the end of the tax-year.
The only way to avoid paying this is to utilise salary sacrifice to effectively lower your salary. Any other form of pension contributions (relief at source or net pay arrangements) will continue to incur NI on them. You can also use salary sacrifice creatively to get both 13.25% NI relief as well as 40% tax relief (if applicable).
Further information on NI rates can be found on the rates and allowances page on the gov.uk website.
National Insurance rate increased (62.5%) by 1.25% from 2% in 2021/22 to 3.25% on NI incurred between Apr 6 and Nov 5. National Insurance rate decreased (38.5%) by 1.25% from 3.25% in Apr 6 - Nov 5 of 2022 to 2% on NI incurred between Nov 6 and the end of the tax year.
You are now a higher rate tax payer and your marginal tax rate is now 40%. You will pay income tax at 40% on everything above the higher rate threshold, but will continue to pay 20% tax on the basic rate band and continue to receive a personal allowance.
You can use a variety of methods to avoid paying tax at this point (up to the additional rate band):
At this point, you lose a couple of benefits:
Further information on income tax rates and tax bands can be found on https://www.gov.uk/income-tax-rates.
Income Tax rate frozen from 2021/22.
You will no longer be eligible for shared ownership properties outside London. More information about the shared ownership scheme and income-related eligibility can be found at https://www.sharetobuy.com/guides-and-faqs/shared-ownership-eligibility/.
Shared ownership threshold frozen from 2021/22.
You will no longer be eligible for shared ownership properties inside London. More information about the shared ownership scheme and income-related eligibility can be found at https://www.sharetobuy.com/guides-and-faqs/shared-ownership-eligibility/.
Shared ownership threshold frozen from 2021/22.
At £100,000, you become liable for the personal allowance taper where your personal allowance decreases by £1 for every £2 that your adjusted net income is above the £100,000 threshold. This makes your effective marginal tax rate here 60%, as you pay more tax at 40% (your higher rate band grows since your personal allowance falls and your basic rate band size stays fixed) but your personal allowance goes down by £1 for every £2.
At this point, the following applies:
Personal Allowance Taper threshold frozen from 2021/22.
You no longer have any personal allowance and your effective marginal tax rate goes back down to 40%.
You are now an additional rate tax payer and your marginal tax rate is 45%. You will pay income tax at 45% on everything above the additional rate threshold, but will continue to pay 20% and 40% on the basic rate and higher rate bands.
You can use the same methods as higher rate tax payers to avoid tax at this point.
At this point, the following applies:
Further information on income tax rates and tax bands can be found on https://www.gov.uk/income-tax-rates.
Income Tax rate frozen from 2021/22.
Calculating whether your income reaches this threshold becomes slightly more complicated as you can no longer claim a reduced threshold from salary sacrifice, but must include this in your adjusted gross income calculations. The relevant calculations for the threshold and adjust income can be found at https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance. You will not be able to use VCT schemes to reduce your 'adjust gross income' but can continue to use them to claim income tax relief.
For every £2 that your 'adjusted income' goes over £240,000 your annual allowance will decrease linearly by £1.
Annual Pension Allowance taper threshold frozen from 2021/22.
At this point, your annual pension tax allowance is cut down to £4,000.