Income tax is the most basic type of tax you will pay on your salary. It’s worth understanding which deductions you should expect and how much they ought to be.
Income tax rates
The rates of income tax for the 2019-2020 tax year, which runs from 6 April 2019 to 5 April 2020, are outlined below.
- £0 to £12,500 – 0% (tax-free Personal Allowance)
Rates of tax above the personal allowance:
- £0 to £37,500 above personal allowance – 20% (Basic rate)
- £37,500 to £150,000 above personal allowance – 40% (Higher rate)
- Over £150,000 above personal allowance – 45% (Additional rate)
It’s also worth noting that your £12,500 Personal Allowance goes down by £1 for every £2 that your net income increases above £100,000.
Income tax rates and the dates for the most recent tax year are updated regularly on the HMRC website.
How is income tax deducted?
Income tax deductions are often listed as “PAYE” on your payslip. PAYE stands for “Pay as you earn” and means that your tax payments and tax-free allowance are spread across the entire year.
In practical purposes, this means that instead of “using up” the £12,500 tax-free allowance in your first few paychecks, that allowance is spread across the entire year (around £1,040 per month).
Newly qualified FY1s are often surprised with a tax payment by their second or third paycheck. From April to August, without having worked a second job, you’ve built-up almost £4,200 worth of allowance.
Your first paycheck is then tax-free (if it’s below £4,200), but you’ll start paying tax after the second or third when you cross the tax-free amount.
You should think of it from the perspective of receiving £1,040 per month tax-free, rather than £12,500 per year.
My tax payments are always changing – am I paying too much?
Your tax payments will vary quite a bit throughout the year – and this is normal for junior doctors. Our actual salaries each month often differ slightly, and HMRC tries to balance out the difference in each paycheck.
Don’t worry too much about the slight variations. Sometime between May and August of the following year, HMRC will add all the payments up and automatically. They will calculate the difference between what you should have paid and what you actually paid, and send you a cheque or ask for the extra payment!
The most important thing to check with income taxes is that your employer has listed your correct tax code on your payslip. They will take care of the rest.