Taxing Wages 2024

United Kingdom (2023-2024 Income tax year)

Abstract

This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.

Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.

 

 

The national currency is the Pound Sterling (GBP). In 2022, GBP 0.82 was equal to USD 1. In 2021-2022, the Average Worker is estimated to earn GBP 48 185 (Secretariat estimate).

1. Personal Income Tax System

1.1. Central government income taxes

1.1.1. Tax unit

The tax unit is the individual, but certain reliefs depend on family circumstances (see Section 1.1.2.1.).

1.1.2. Tax allowances and tax credits

All figures shown are those applying at the start of the tax year in April.

1.1.2.1. Standard reliefs

• Basic reliefs: A personal allowance of GBP 12 570 is granted to each individual with income below GBP 100 000. The personal allowance is then tapered away by GBP 1 for every GBP 2 of income above GBP 100 000.

• Standard marital status reliefs: Marriage Allowance – Allows the transfer of 10% of an individual’s personal allowance to their husband, wife or civil partner. The allowance is restricted to couples where the higher earner is a basic rate taxpayer and is only beneficial if the lower earner owes below the personal allowance. The allowance has to be claimed and is given only to those who meet the eligibility criteria.

• Relief for social security contributions and other taxes: None.

1.1.2.2. Main non-standard tax reliefs applicable to an AW.

• Work-related expenses: Flat rate expenses for tools and special clothing are allowed to certain occupational categories. Since this provision is not applicable to all manufacturing occupations, and hence average workers, and because the rates vary slightly across categories, this relief is considered here as non-standard;

• Contributions to approved superannuation schemes or personal pension schemes are deducted when calculating taxable income. Premiums on approved life assurance policies payable to life assurance companies attract 12.5% tax relief for policies entered into force before 13 March 1984.

1.1.3. Tax schedule

In 2023-24 all taxpayers are liable on taxable income other than savings and dividend income at the basic rate of 20% on the first GBP 37 700, 40% over the basic rate limit of GBP 37 700 and 45% over the higher rate limit of GBP 150 000. (Taxable Income is defined as gross income for income tax purposes less allowances and reliefs available at the marginal rate.) Dividend income is charged at 8.75% up to the basic rate limit of GBP 37 700, 33.75% above GBP 37 500 and 39.35% above GBP 150 000. The Dividend Allowance is GBP 1 000 in 2023-24, meaning that dividend taxpayers will not have to pay tax on the first GBP 1 000 of their dividend income, no matter what non-dividend income they have. Savings income is charged at 0% up to the starting rate limit on the first GBP 5 000, at 20% up to GBP 37 700, 40% above GBP 37 700 and 45% above GBP 125 140. From 2016-17, a new Personal Savings Allowance was introduced giving GBP 1 000 of savings income tax free for taxpayers with total income below the basic rate limit or GBP 500 for those with total income below the higher rate limit.

 

Taxable income (GBP)	Rate %
0–37 700	20
37 700–125 140	40
Over 125 140	45

1.2. State and local income tax

From 2018-19 the Scottish Government has introduced a starter rate band for non-savings non-dividend income of Scottish taxpayers. In 2023-24, the starter rate band applied from GBP 12 570 to GBP 14 732. The basic rate band for non-savings non-dividend income is set from GBP 14 732 to GBP 25 688. The Scottish Government has an intermediate rate band for non-savings non-dividend income of Scottish taxpayers from GBP 25 688 to GBP 43 662. The higher rate band for non-savings non-dividend income of Scottish taxpayers in 2022-23 is from GBP 43 662 to GBP 125 140.

In 2023-24 all Scottish taxpayers are liable on taxable income other than savings and dividend income at the starter rate of 19% on the first GBP 2 162, 20% over the starter rate limit of GBP 2 162, 21% over the basic rate limit of GBP 13 118, 42% over the intermediate rate limit of GBP 31 092 and 47% over the higher rate limit of GBP 125 140. (Taxable Income is defined as gross income for income tax purposes less allowances and reliefs available at the marginal rate.)

2. Compulsory Social Security Contributions to Schemes Operated Within the Government Sector

2.1. Employees’ contributions

In 2023-24 National Insurance contributions (NICs) were payable by employees earning more than GBP 242 in any week. This averages out to an annual equivalent of GBP 12 57011 908. These NICs are 12% of weekly earnings between the Primary Threshold (GBP 242) and GBP 967 and 2% of earnings above GBP 967. Depending on eligibility, members of the National Insurance scheme qualify for pensions, sickness, industrial injury, unemployment benefits, etc. All employees earning under the weekly Primary Threshold have no National Insurance contribution liability, but a notional contribution will be deemed to have been paid in respect of earnings between GBP 123 and the Primary Threshold to protect benefit entitlement.

2.2. Employers’ contributions

Employer's contributions are not payable for employees earning less than GBP 175 per week. The rate of employers’ contributions for employees is 13.8% of earnings above GBP 175 per week.

The apprenticeship levy was introduced in April 2017. The apprenticeship levy is charged at a rate of 0.5% on the gross pay bill of employers. Employers will receive an allowance of GBP 15 000 per year to offset against the levy meaning that only employers with a gross pay bill of over GBP 3m will end up paying the levy. Due to the fact that the apprenticeship levy does not apply to all employers, it is not included in the Taxing Wages calculations

3. Universal Cash Transfers

3.1. Transfers related to marital status

None (widows’ benefit is covered by the government pensions scheme noted above).

3.2. Transfers for dependent children

Child Benefit: GBP 24.00 per week is paid in respect of the first child in the family up to the age of 19 (if the child aged 16-19 is in education or training) with GBP 15.90 per week paid for each subsequent child.

Since January 2013, a tax charge has applied for any taxpayer who has income over GBP 50 000 and either they or their partner are in receipt of Child Benefit. For those with adjusted net income (ANI, pre-tax income less certain allowances) between GBP 50 000 and GBP 60 000, the amount of the charge will be 1% of the Child Benefit for every GBP 100 of income over GBP 50 000. For those with income over GBP 60 000, the amount of the charge will equal the amount of Child Benefit. Child Benefit recipients can opt out of receiving payments as an alternative to paying the charge. Where both adults are over the threshold, the liability falls on the adult with the highest ANI.

Universal Credit (UC): a payment available to low income families with or without children which is gradually replacing a number of benefits and tax credits (including Working and Child Tax Credit). The maximum amount depends on the age of the claimant(s), whether they are single or in a couple, the number of children, whether claimant(s) have a disability or health condition that limits their capability for work, if claimant(s) have disabled children, whether the claimant(s) are carers, and childcare and housing costs. A couple where one is aged over 25 with a child born prior to 6 April 2017 would receive a maximum UC monthly amount of GBP 893.82 or GBP 10725.84 per year, assuming no other elements are payable. UC is reduced by a “taper rate” of 55 pence for each GBP of earnings (net of income tax and employee social security contributions) above a threshold (or “work allowance”) of GBP 631 per month; a different threshold of GBP 379 per month is applied if the claimant has housing costs.

Claimant(s) receive a work allowance if they have limited capability for work or have children. UC may also be reduced by other income the claimant may have. There are further rules around the amount of savings held by claimants, and for some claimants the total amount payable is subject to a cap.

4. Recent changes in the tax/benefit system

4.2. Other changes

For the first time since its introduction in 2010-11, the Additional Rate threshold which had been fixed at GBP 150 000, has been reduced to GBP 125 140 and aligned to the end of the Personal Allowance taper.

5. Memorandum Items

5.1. Identification of AW and valuation of earnings

A new Annual Survey of Hours and Earnings (ASHE) has been developed to replace the New Earnings Survey (NES) (results of which are published in Labour Market Trends) and shows the average weekly earnings of full-time employees in April each year. It covers men and women at adult rates in the United Kingdom (excluding Northern Ireland). The annual figure used for the gross earnings of the AW in the United Kingdom is the annual equivalent of the arithmetic average of the weekly earnings figures for April at the beginning and end of the fiscal year, as published in Labour Market Trends.

The earnings figures exclude the earnings of those whose pay was affected by absence (due to sickness etc.). They include overtime, payment by results and shift payments. But they do not include benefits in kind (which could in some circumstances be included in the employee's taxable income in the United Kingdom).

5.2. Employers’ contributions to private pension, health etc. schemes

In 2008, there were 9.0 million active members of occupational pension schemes with two or more members in the UK, of whom 3.6 million were in the private sector and 5.4 million in the public sector.

2023 Parameter values

 

Average earnings/yr	Ave_earn	48 185	Secretariat's estimate
Allowances	Basic_al	12570
	PA taper start	100000
	Married_al	1260
	Married_rate	0
Income tax	Tax_sch	0.2	37700
		0.4	125140
		0.45
Employees SSC
Primary threshold	SSC_sch	0	12570
Upper earnings limit		0.12	50270
		0.02
Employers SSC	SSC_rate2	0.138
	ST	9100
Child benefit (first)	CB_first	24.00
Child benefit (others)	CB_others	15.90
	CB_1st_thres	50000.00
	CB_2nd_thres	60000.00
	CB_taper1	0.01
	CB_taper2	100.00
UNIVERSAL CREDIT
Monthly rates
Standard allowance (single over 25)	UC_standard_single	368.74
Standard allowance (couple over 25)	UC_standard_couple	578.82
Child element (first child born<6 Apr 2017)	UC_child_1	315.00
Child element	UC_child	269.58
Work allowance (no housing costs)	UC_WA	631.00
Taper rate	UC_taper	0.55
Number of days in year	numdays	366.00

2023 Tax equations

The equations for the UK system are mostly on an individual basis. But Universal Credit is calculated on a family basis and child benefit is calculated only once. This is shown by the Range indicator in the table below.

The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.

 

	Line in country table and intermediate steps	Variable name	Range	Equation
1.	Earnings	Earn
2.	Allowances:	tax_al	B	IF(Earn<PA_taper,IF(AND(OR(((MAX(Earn-Basic_al,0))+(MAX(AF7-Basic_al,0)))>((MAX(Earn-(Basic_al+Married_al),0))+(MAX(AF7-(Basic_al-Married_al),0))),((MAX(Earn-Basic_al,0))+(MAX(AF7-Basic_al,0)))>((MAX(Earn-(Basic_al-Married_al),0))+(MAX(AF7-(Basic_al+Married_al),0)))),AND(Earn<(BRL+Basic_al),(AF7<(BRL+Basic_al))),Married=1),IF(Earn>=AF7,Basic_al+Married_al,Basic_al-Married_al),Basic_al),IF(Earn>(PA_taper+(Basic_al*2)),0,MAX(0,(Basic_al-((Earn-PA_taper)/2)))))
3.	Credits in taxable income	taxbl_cr	B	0
4.	CG taxable income	tax_inc	B	Positive(earn-tax_al)
5.	CG tax before credits	CG_tax_excl	B	Tax(tax_inc, tax_sch)
6.	Tax credits	tax_cr	J	0
7.	CG tax	CG_tax	B	CG_tax_excl-tax_cr
8.	State and local taxes	local_tax	B	0
9.	Employees' soc security	SSC	B	Tax(earn, SSC_sch)
11.	Cash transfers	cash_trans	J	=((IF(princ_earn>CB_1st_thres,IF(princ_earn>CB_2nd_thres,0,((1-(AA7-CB_1st_thres)/(CB_taper2/CB_taper1)))*(numdays/7*((Children>0)*CB_first+CB_others*Positive(Children-1)))),(numdays/7*((Children>0)*CB_first+CB_others*Positive(Children-1)))))+(SINGLE(IF(Children>0,IF(Married=0,Taper(SUM(UC_child_1,(Children-1)*UC_child,UC_standard_single),((monthly_net_earnings),UC_WA,UC_taper),Taper(SUM(UC_child_1,(Children-1)*UC_child,UC_standard_couple),(monthly_net_earnings),UC_WA,UC_taper)),IF(Married=0,Taper(sum(UC_standard_single),(monthly_net_earnings),0,UC_taper),Taper(sum(UC_standard_couple),(monthly_net_earnings),0,UC_taper)))))*12
13.	Employer's soc security	SSC_empr	B	(earn>ST)*(earn-ST)*SSC_rate2
	Memorandum item: Non-wastable tax credit
	tax expenditure component	Taxexp	J	Tax_cr-transfer
	cash transfer component	Transfer	J	IF(CG_tax_excl<0, -CG_tax_excl, 0)

Key to range of equation B calculated separately for both principal earner and spouse P calculated for principal only (value taken as 0 for spouse calculation) J calculated once only on a joint basis.