Question

How much Income Tax would be paid by someone earning £42000 in a tax-year when the basic rate of Income Tax is 20% and the annual tax-free personal allowance is £12500?

Answer 1

To calculate the income tax paid by someone earning £42000, we need to first determine their taxable income, which is their income minus their tax-free personal allowance.

Taxable income = £42000 - £12500 = £29500

Next, we need to determine how much of the taxable income falls within the basic rate tax band. For the tax year 2021-2022, the basic rate tax band is £37500, which means that taxable income up to this amount is taxed at the basic rate of 20%.

In this case, £29500 is entirely within the basic rate tax band. Therefore, the income tax paid can be calculated as follows:

Income tax = Taxable income x Tax rate

Income tax = £29500 x 0.20 = £5900

Therefore, someone earning £42000 in the tax year 2021-2022 and receiving the full personal allowance of £12500 would pay £5900 in income tax.