Before manually calculating your tax, you'll need to understand your tax code. For more information about understanding tax codes, please refer to our Help Centre article.
Manually calculating tax
To calculate tax manually, follow these six steps:
1️⃣ Sum your taxable payments: Identify taxable income like salary, bonuses, and overtime and add them together.
2️⃣ Minus your pre-tax deductions: Identify any deductions that reduce your taxable income, such as pension contributions or charitable donations, and deduct them from your taxable payments.
3️⃣ Calculate your personal allowance: Calculate your annual personal allowance using your tax code. (e.g., 1257L becomes £12,570).
4️⃣ Calculate your taxable pay: Subtract your personal allowance from your total taxable income.
5️⃣ Apply the relevant tax bands and rates: In the UK, income tax is divided into different bands with varying tax rates.
Note: Scotland uses different rates and thresholds.
Basic Rate (20%): Applies to income within the basic rate band.
Higher Rate (40%): Applies to income within the higher rate band.
Additional Rate (45%): Applies to income over the additional rate threshold.
6️⃣ Calculate how much tax is due: Apply the relevant rates to your taxable income to calculate your tax due.
Examples
1️⃣ To manually calculate tax, the first value you need is the elements of your pay that are subject to tax. You can then use this value to calculate the tax due in each period.
Note: The rates and bands in the following examples apply to Wales and the rest of the UK (rUK). For the rates and bands to use if you have a Scottish tax code, please refer to our Help Centre article.
Example - April 2024
Name: Taylor
Tax month: 01 – April
Annual salary: £26,000
Monthly salary: £2166.67
Tax code: 1257L
Pension: 5% Net pay arrangement (on basic salary of £2,166.67)
First, add together the elements of pay that are subject to tax, then minus any of the following deductions:
Pension contributions (Net pay arrangement or salary sacrifice)
Childcare vouchers
Give as you earn (GAYE), also known as Payroll Giving
Cycle to work scheme
Now to calculate the taxable pay and subtract the free-pay allowance (or add it, if your tax code has a ‘K’ prefix).
Payments | Amount | Calculation Information |
Salary | £2,166.67 | Salary |
Pension (Net Pay Arrangement) | -£108.33 | 5% of monthly salary |
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Taxable Earnings | £2,058.34 | You'll also use this value in month 2 |
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Free-pay allowance | -£1,048.25 | 12,579/12 |
Taxable Pay | £1,010 | Rounded down to the nearest pound |
Using Taylor's taxable pay of £1,010, we can calculate how much tax is due.
Tax element | Amount | Details |
Taxable pay | £1,010 |
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Tax @ 45% (£150,000/12 = £12500) | £0 | Below £12,500 |
Tax @ 40% (£37,000/12 = £3141.67) | £0 | Below £3,141.67 |
Tax @ 20% (37,700/12 = £3141.67) | £202 | £1,010 @ 20% |
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Total tax due | £202 |
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Example - May 2024
Name: Taylor
Tax Month: 02 (May 2024)
Annual salary: £26,000
Monthly salary: £2,166.67
Bonus: £5,000 (One-off payment)
Tax code: 1257L
Pension: 5% Net pay arrangement (on basic salary of £2,166.67)
Again, add together the elements of pay that are subject to tax, then minus any of the following deductions:
Pension contributions (Net pay arrangement or salary sacrifice)
Childcare vouchers
Give as you earn (GAYE), also known as Payroll Giving
Cycle to work scheme
Now to calculate the taxable pay to date and subtract the free-pay allowance to date (or add it, if your tax code has a ‘K’ prefix).
Payments | Amount | Details |
Salary + Bonus | £2,166.67 | Salary |
Pension | -£108.33 | 5% of monthly salary |
Bonus | £5,000 | Bonus isn’t pensionable |
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Taxable earnings M2 | £7,058.34 | This month’s taxable pay |
Taxable earnings to date | £9,116.68 | M1 + M2 taxable pay |
Free-pay allowance to date | -£2,096.50 | 12,579/12 x 2 |
Taxable pay | £7,020 | Rounded down to the nearest pound |
Using Taylor's taxable pay to date of £7020.18, we can calculate how much tax is due.
Tax element | Amount | Details |
Taxable pay | £7,020 |
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Tax @ 45% (£150,000/12 = £12500) | £0 | (Below £12,500) |
Tax @ 40% (£37,000/12 = £3141.67) | £294.67 | £37700/12 x 2 = £6,283.33 £7,020 - £6,283.33 = £736.67 @ 40% |
Tax @ 20% (37,700/12 = £3141.67) | £1,256.67 | £37700/12 x 2 = £6,283.33 @ 20% |
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Total tax due to date | £1,551.34 |
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Total tax due this period | £1,349.34 | Tax due to date £1,551.34 Minus tax already paid £202 |
For further information about income tax, please refer to our Help Centre article.