2017/18 Income Tax & National Insurance rates

This guide contains the Income Tax and National Insurance rates and Personal Allowance for the tax year 6 April 2017 to 5 April 2018.

Personal Allowance

For the majority of employees, the tax-free Personal Allowance for 2017/18 will be £11,500 which means the first £11,500 of earnings in the tax year will be free of Income Tax.

This will be reflected in your tax code. If your tax code for 2017/18 is 1150L then you will be entitled to this allowance when your salary is calculated. Your coding notice may be adjusted by any allowances you are entitled to which reduce your tax bill or things that you have to pay tax on through your salary or pension. You can find more information on tax codes here.

Income Tax rates

Income per year Rate (salaries) Rate (dividends) – above dividend allowance of £5,000
Basic Rate £11,500 – £45,000 20% 7.5%
Higher Rate £45,001 – £150,000 40% 32.5%
Additional Rate Above £150,000 45% 38.1%

Income Tax example

If an employee earns a salary of £56,000 they will pay tax as follows:

  • Personal Allowance – the first £11,500 of their salary will be free of tax
  • Basic Rate – they will pay 20% tax on £33,500 of their salary, which is £6,700
  • Higher Rate – they will pay 40% tax on the remaining £11,000 of their salary, which is £4,400
  • In total, this employee will pay £11,100 in Income Tax

National Insurance rates

There are two different National Insurance contributions that must be paid: one is paid by the employee and is deducted from their gross salary, in a similar way to income tax; the second payment is made by the employer and is an additional outgoing for the employer, in addition to gross salaries.

Paid by Employees Paid by Employers
Income per year Rate Income per year Rate
Below £8,164 0% Below £8,164 0%
£8,165 – £45,000 12% Above £8,165 13.8%
Above £45,000 2%

National Insurance and state benefits

Employees must earn over £5,876 per year in order to retain access to certain state benefits, such as state pensions.

 

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