What is basic rate tax?
The basic rate of income tax is one of four income tax rates. For tax payers it is the most common rate at which your income is taxed.
After the tax free personal allowance the basic rate of tax is the first tax bracket where tax is deducted from your income.
As soon as your income is higher than the tax free personal allowance the basic rate of income tax is applicable to your taxable income.
Understanding how much tax you will pay at the basic rate and other rates can help you work out how much income tax you will need to pay to HMRC.
How much tax do I pay at basic rate?
The basic rate of tax is charged at 20% of all of your taxable income.
How much do I have to earn to pay basic rate tax?
The basic rate of tax currently applies to income over £12,570 up to a limit of £50,270.
This means tax will be deducted at a 20% rate of all income received within that bracket of tax.
Your income before the personal allowance is not taxable and your income after the basic rate of tax limit is taxed at a higher rate of either 40% or 45%.
The thresholds at which you start and stop paying tax can alter with the government announcing changes in the budget before implementing them.
What is a BR tax code?
A BR tax code stands for basic rate and is used in some cases to deduct the basic rate of tax from all of the income received from that source.
If you have more than one source of income it is possible to have a BR tax code on one form of income and a different tax code used on another.
A BR tax code can sometimes mean you overpay tax but in some cases a BR tax code is necessary so you don’t underpay tax.
What are the other rates of tax?
In addition to the basic rate there are three other rates of tax that apply to your income.
Different thresholds are given to each rate resulting in you paying more or less tax depending on your income level.
Income Tax Rates
- Personal allowance which is tax free
- Basic rate tax paid at 20%
- Higher rate tax paid at 40%
- Additional rate tax paid at 45%
The rates of tax are valid to both employed tax payers under PAYE and the self employed.