Income tax is calculated in terms of different tax bands. The different categories of income are the tax bands, which encompasses a range of incomes. The amount you have to pay is calculated as a percentage, called a marginal tax rate. The following table shows what the tax band and marginal tax rates are for 2018:
2018 Tax Bands
Band | Rate | Income after allowances 2018 to 2019 |
Basic rate in Scotland | 20% | £2,001 to £12,150 |
Basic rate in rest of UK | 20% | Up to £34,500 |
Intermediate rate in Scotland | 21% | £12,151 to £31,580 |
Higher rate in Scotland | 40% (41% from 2018 to 2019) | £31,581 to £150,000 |
Higher rate in rest of UK | 40% | £34,501 to £150,000 |
Top rate in Scotland | 46% | Over £150,000 |
Rest of UK additional rate | 45% | Over £150,000 |
(Source: Gov UK’s Tax rates and Bands)
It may seem drastic for a single person in Wales, for example, to have to pay 45%on an income of £150,100, or 40% on an income of £36,000, when they’re only just within that tax bracket – and the good news is that they don’t have to. This is where marginal tax rates come into play. Essentially, what this means is that different income brackets are taxed differently: the first £34,500 is taxed at 20%, regardless if a person earns £33,000 annually or £35,000. The remaining £499 in the case of someone earning £35,000 is then taxed at 40% – and this goes on throughout the tax bands.