There are currently 3 rates of tax on wages:
1. The basic rate of tax – 20%
2. The higher rate of tax – 40%
3. The additional rate of tax – 50%
|Basic rate: 20%||£0-£34,800||£0-£37,400||£0-£37,400|
|Higher rate: 40%||Over £34,800||Over £37,400||£37,401-£150,000|
|Additional rate: 50%||Not applicable||Not applicable||Over £150,000|
Even though the above table shows that you start paying the 40% rate of tax after earning £37,400, remember that everyone that works in the UK is given a tax free allowance (currently £6,475). This means that you could earn:
37400+6475 = £43,875 before paying the higher rate of tax of 40%
Remember that you only pay 40% on any income above the higher rate of tax, not your entire salary. So any pound over this amount will be taxed at 40 pence but any amount before will still only be taxed at 20 pence in the pound.
Let us know if you have any questions about this, in the comments below.