Updated on: Jan 22, 2024
Our article today is a bit more mundane than the previous articles I have written but because we run our own contactor accounting company and our own PAYE umbrella company, we need to keep ourselves abreast of the current income tax and national insurance contributions rates for the 2023 tax year.
The issue I have is that the information I want is never clearly displayed on a single page and doesn’t always give me the immediate information that I need. So, for my benefit and for the benefit of everyone else who suffers this problem here are the national insurance contribution bands and percentages, along with the PAYE tax bands and percentages for the 2023/24 tax year.
I will also take the opportunity to show you how these calculations work so that you can use them if you’re trying to work out what your net income will be based on your gross salary.
Video Summary
Want to watch our YouTube video instead? It summarises the main points but refer back to this article for more in-depth information.
Personal allowance
Let’s cover off the personal allowance first because that is the first number I always want to know. The personal allowance is the amount of income you can earn completely tax free. There are other allowances, such as the dividend allowance, and the annual exempt amount for capital gains tax, but here we are just looking at normal income usually in the form of a salary.
Personal allowance for 2023/24: £12,570
The personal allowance is also reflected in the emergency tax code for 2023/24. The HM Revenue & Customs call the most common tax code the “emergency tax code” which does not seem to be an intuitive name. However, whenever I want to look at what the usual tax code is for any particular tax share I will always search for the “emergency tax code”.
Emergency tax code for 2023/24 : 1257L
It’s no coincidence that the first 4 digits of the emergency tax code also matched the first four digits of the personal allowance. It’s a feature of the UK tax system and without getting into too much detail using a tax code of 1257L ensures that your income enjoys no tax on the personal allowance element.
Income Tax Rates for 2023/24
Let’s now look at the rate of income tax you will pay on your income. I’ve also included the dividend tax rate in the table below because they both used the same income bands. Paying tax refers to payment of income tax (or PAYE).
| Annual income | PAYE tax rate | Dividend tax rate | |
| Personal allowance* | Up to 12,570 | 0% | 0% |
| Basic rate | Over 12,570 to 50,270 | 20% | 8.75% |
| Higher rate | Over 50,270 to 125,140 | 40% | 33.75% |
| Additional rate | Over 125,140 | 45% | 39.35% |
Income tax is automatically calculated by your employer and you will see a deduction for it on your payslip. How much income tax you owe on your payslip is determined by the amount of income to be taxed, your tax code, and your previous earnings in the same tax year. All three things combine to provide you with an income tax deduction, and regardless of the payroll software that you use this deduction will always be the same, because all payroll software products must use the same calculation.
Your employer will pay income tax to the HMRC on your behalf, and the requirement to pay tax is simply determined by the payslip calculation.
* Personal allowance. The Personal Allowance goes down by £1 for every £2 of income above £100,000. If your income exceeds £125,140 then your Personal Allowance drops to £0.
National Insurance Rates for 2023/24
There are two main types of National Insurance Contributions (NIC). The first is Employers NI contributions and this is a cost that is borne by the employer. This is paid to the HMRC in addition to the gross salary that is paid to you. So from an employers perspective the cost of hiring an employee is actually their agreed annual salary plus employers National Insurance (and there are likely to be additional costs to the employer such as pension contributions, medical insurance, and other staff benefits). Some employers can have this reduced with the Employers Allowance.
The other common type of National Insurance is called Employees National Insurance contributions, and this is a cost that is borne by the employee. You will see it deducted off your pay slip along with your income tax deduction, student loan deductions and any other statutory deductions that your employer is obliged to make from your pay slip.
The amount of NIC’s you pay depends on your gross income. Let’s wrap all this information up and a single table. This is a simplified version of how National Insurance contributions work for the 2022/23 tax year but it allows you to easily see how this is calculated.
| Employees NIC | Employers NIC | ||
|---|---|---|---|
| Annual income | Rate | Annual income | Rate |
| Up to 12,570 | 0% | Up to 9,100 | 0% |
| Over 12,570 to 50,270 | 12% | Over 9,100 | 13.8% |
| Over 50,270 | 2% | ||
Just like with Income Tax, your employer will pay National Insurance contributions directly across to the HMRC on your behalf.
State Pension
One thing we have not specified above is the National Insurance threshold at which your earnings count towards a qualifying year for your State Pension. For this, your earnings must be above the Lower Earning Limit (or LEL) which for 2023/24 is;
- Weekly earnings LEL : £123
- Monthly earnings LEL : £533
- Annual earnings LEL : £6,396
So, if you were earning £125 per week, you would not pay any National Insurance contributions and you would not pay any tax, however your earnings would count as a qualifying week towards your eligibility for the State Pension.
Payroll Taxes Example
Now that we have covered off the main rates of Income Tax and National Insurance contributions let’s do a worked example to show you how these calculations work in practise. Note that the calculation of Income Tax and National Insurance follows specific formulas that can be quite complicated. Out calculation below is a simplified example, however it will be accurate to within a couple of pounds. If you are working through your own company try our dividend and salary tax calculator instead.
Lets say Mia works at a law firm in London and earns a gross salary of £85,000 per year. How much tax and NICs will she pay? She has no other forms of income.
Lets assume Mia is on the normal tax code for 2023/24 which is 1257L. This means she can use the full personal allowance of £12,570, so her taxable annual income becomes 85,000 – 12,570 = 72,430. Lets put that into our tax table above.
| Annual income bands | Income taxed | Tax rate | Tax due | |
| Personal allowance | Up to 12,570 | 12,570 | 0% | 0 |
| Basic rate | Over 12,570 to 50,270 | 37,700 | 20% | 7,540 |
| Higher rate | Over 50,270 to 125,140 | 34,730 | 40% | 13,892 |
| Additional rate | Over 125,140 | 0 | 45% | 0 |
| Totals | £85,000 | £21,432 |
National Insurance contributions
These are easier to work out, as there is no tax code used in the calculation. We can simply plug her gross income into the NIC tax rates table that we had above.
| Annual income bands | Income taxed | NIC rate | NIC due |
| Up to 12,570 | 12,570 | 0% | 0 |
| Over 12,570 to 50,270 | 37,700 | 12% | 4,524 |
| Over 50,270 | 34,730 | 2% | 695 |
| Totals | £85,000 | £5,219 |
Net take home
Now that we have calculated the income tax and National Insurance deductions it’s simple to arrive at her net pay for the year. The calculation is Gross Pay – Income tax – Employees NIC = 85,000 – 21,432 – 5,219 = £58,349.
And using our NIC table above, the employers NIC cost will be (85,000 – 9,100) = 75,900 * 13.8% = £10,474. So, in this case the total cost to Mia’s law firm for hiring her (ignoring any additional costs such as pension contributions, medical insurance, and other staff benefits) will be 85,000 + 10,474 = £95,474.
I hope this article has helped you better understand the main tax and NIC thresholds that are applied to your income. There are many other variations of this calculation depending on your different types of income however if you are a normal wage earner with no other forms of income then this calculation will suit you perfectly. Because the tax and NIC you pay is calculated through your company payroll, there is not usually any requirement to complete a self assessment tax return and so long as your employer uses the correct tax code for you its unlikely you will pay too much tax.