Personal Tax Allowance
From 6th April 2018, the new annual Personal Allowance for income tax purposes is £ 11,850.
An Employee’s tax allowance is divided up according to how often he/she is paid.
Using the 1185L tax code / £11,850 annual allowance as an example:
Monthly paid Employees can earn £988 per month before paying tax.
Weekly paid Employees can earn £228 per week.
Four weekly paid Employees can earn £912 per pay period.
Fortnightly paid Employees can earn £456 per pay period.
Emergency / “Normal” Tax Code
The new emergency / “normal” tax code is 1185L.
Increases to Tax Codes
Most payroll software will automatically update tax codes where P9 coding notices have not been issued for an Employee.
It’s always worth checking that the new tax codes from 6th April are correct:
Tax codes with the suffix L should increase by 35 (eg 1150L becomes 1185L)
Tax codes with the suffix M should increase by 38 (eg 1265L becomes 1303L)
Tax codes with the suffix N should increase by 31 (eg 1035L becomes 1066L)
No tax code should be marked with a week 1 / month 1 / X after it for the first payroll run in the new tax year unless requested by HMRC.
For further guidance on uplifting tax codes for the new tax year, please visit the gov.uk website here.
Tax Bands (UK not Scotland)
Basic Rate 20%: £0 – £34,500
Higher Rate 40%: £34,501 – £150,000
Additional Rate 45%: £150,000+
What do the tax bands mean?
For earnings above £988 up to £2,875 per month (or the equivalent threshold depending on the pay frequency), the basic rate of 20% tax is applied.
Earnings above £2,875 (or equivalent) then move in to the higher rate tax band and are taxed at 40%.
Earnings above £12,500 per month (or equivalent) are taxed at 45%.
Tax in Scotland
The personal allowance in Scotland is also £11,850. However, the tax bands for residents in Scotland from April 2018 will be quite different to the rest of the UK. (These also apply to people who have their registered address in Scotland but work in other parts of the UK.)
Please click here for full details.