Am I paying the right amount of income tax?

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If you're not sure why you're being taxed on your earnings, or if you're being taxed the right amount then keep on reading and it will all become clear.

What is income tax?

Income tax is collected by HM Revenue and Customs on behalf on the government to fund public services like the NHS and education.

What is a Personal Allowance?

Your Personal Allowance is the amount of money you can earn in each tax year before you are charged income tax. It's set by the government and is subject to review year on year as part of the Government's budget setting.

The tax year runs from April to April, and the current Personal Allowance is £12,500. If you're earning less than this amount then you won't need to pay any income tax.

How much income tax will I pay?

There are different 'bands' when it comes to tax. These bands are determined by what your income is and, therefore, what proportion of tax you'll need to pay on your earnings.

Generally the bandings work as below:

  • Basic rate = 20%. Those earning up to £50,000 will be charged a basic rate on income over £12,500.

  • Higher rate = 40%. For those earning between £50,001 and £150,000.

  • Additional rate = 45%. For those earning over £150,000.

To find out exactly how much income tax you should be paying, try GoCompare's income tax calculator.

Compare this figure with the one showing on your payslip and make sure that everything is as it should be.

What to do if you've been charged the wrong amount

This can happen when tax bands and codes get mixed up. If you think that you've been charged too much tax, then you can fill in a form to reclaim tax on the GOV.uk website or you can contact HMRC. If you are correct, then they will arrange to refund the money.

What are my National Insurance contributions?

These contributions are automatically taken when you start earning over £183 a week, and the contributions go towards helping build certain benefits like pensions.

How much National Insurance should I be paying?

Like your income tax, the amount of National Insurance you pay is relative to how much you earn. So, you'll be charged 12% of your weekly income between £183-£962 and 2% of your weekly earnings above £962.


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