Basic-Rate Tax

The UK government (and most governments) charge a tax on incomes above a certain level, which is known as the Personal Allowance. The current tax system that is in place is a progressive system, which means that the tax rate increases as the level of income increases. Currently, there are three income bands that attract different tax rates. The basic rate is that which applies to the lowest of these three bands. You will pay this basic tax rate for the level of income up to the maximum of this tax band, and any income that you generate above this band will move you into the next tax band. You will pay a higher rate of tax on this additional income. Both the tax bands and the tax rate are reviewed by the Chancellor of the Exchequer on an annual basis, and any changes that are to be made in the following year are announced in the country’s annual Budget.

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