Taxable income is the portion of an individual’s or company’s income used to determine how much tax an individual or organisation owes the government in a given tax year. Earned and unearned income are both included in taxable income. Salaries, wages, bonuses, and tips are all included, including investment income and different kinds of unearned income.
Businesses do not report their revenue as taxable income when they file their taxes. Instead, they calculate their business income by deducting their business expenses from their revenue. Then they subtract their deductions to determine their taxable income.
Taxable income is the amount an individual earns above the personal allowance (£12,570 for 2021-22 and £12,500 for 2020-21) and any other reliefs that he/she is eligible for.
The United Kingdom uses a “progressive tax rate” structure. The level of tax charged rises as the amount of the individual or company’s taxable income increases.
How to calculate taxable income in the UK?
Income Tax is payable at the following rates in England, Wales, and Northern Ireland:
| Tax Band | Tax Rate |
| Up to £12,500 | 0% {Personal Allowance} |
| £12,501 – £50,000 | 20% {Basic Rate} |
| £50,001 – £1,50,000 | 40% {Higher Rate} |
| Above£1,50,000 | 45% {Additional rate} |
Scottish Income tax rates
| Tax Band | Tax Rate |
| Up to £12,500 | 0% {Personal Allowance} |
| £12,501 – £14,585 | 10% {Starter Rate} |
| £4,586 – £25,158 | 20% {Basic Rate} |
| £25,159 – £43,430 | 21% {Intermediate Rate} |
| £43,431 – £150,000 | 41% {Higher Rate} |
| Over £150,000 | 46% {Top Rate} |
Having a taxable income of £ 50,000 or above, England or Wales residents have to pay taxes at a higher rate of 40 per cent tax on the amount above £50,000.
Wages, interest earned from some bank accounts and savings (generally only if it exceeds £1,000 per year), job perks (bonuses, expenses), as well as some state benefits, such as Jobseeker’s Allowance, are all examples of taxable income.
Taxable income counts against your allowance, so even if you only earn £12,400 per year from your job, an additional income of this type could push you over the limit.
The amount of the income which is taxable from the taxpayer is taken and provided to the HRMC. The HRMC then uses the money collected for meeting various recurring as well as non-recurring expenses.