Taxing Wages 2025

The national currency is the Pound Sterling (GBP). In 2024, GBP 0.78 was equal to USD 1. In 2024-2025, the Average Worker is estimated to earn GBP 51 310 (Secretariat estimate).

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

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

• 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.

• 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.

In 2024-25 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 125 140. (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 37 700 and 39.35% above GBP 125 140. The Dividend Allowance is GBP 500 in 2024-25, meaning that dividend taxpayers will not have to pay tax on the first GBP 500 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.

From 2018-19 the Scottish Government has introduced some additional tax bands including a starter rate band for non-savings non-dividend income of Scottish taxpayers. In 2024-25, the starter rate band applied from GBP 12 570 to GBP 14 876. The basic rate band for non-savings non-dividend income is set from GBP 14 876 to GBP 26 561. The Scottish Government has also introduced an intermediate rate band for non-savings non-dividend income of Scottish taxpayers from GBP 26 561 to GBP 43 662. The higher rate band for non-savings non-dividend income of Scottish taxpayers in 2024-25 is from GBP 43 662 to GBP 75 000. In 2024-25 they introduced another new band, the advanced rate band for non-savings non-dividend income of Scottish taxpayers applied from GBP 75 000 to GBP 125 140.

In 2024-25 all Scottish taxpayers are liable on taxable income other than savings and dividend income at the starter rate of 19% on the first GBP 2 306, 20% over the starter rate limit of GBP 2 306, 21% over the basic rate limit of GBP 13 991. The rate was increased in 2023-24 to 42% over the intermediate rate limit of GBP 31 092, remained at 45% over the higher rate limit of GBP 62 430 and in 2024-25 the rate was increased to 48% over the advanced rate limit of GBP 125 140 following the increase to 47% in 2023-24. (Taxable Income is defined as gross income for income tax purposes less allowances and reliefs available at the marginal rate.)

In 2024-25 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 12 570. These NICs are 8% 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.

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

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

Child Benefit: GBP 25.60 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 16.95 per week paid for each subsequent child.

A High Income Child Benefit Charge applies for any taxpayer who has income over GBP 60 000 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 60 000 and GBP 80 000, the amount of the charge will be 1% of the Child Benefit for every GBP 200 of income over GBP 60 000. For those with income over GBP 80 000, 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 950.93 or GBP 11411.16 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 673 per month; a different threshold of GBP 404 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.

From April 2024, the threshold for the High Income Child Benefit Charge was increased from GBP 50 000 to 60 000, the first rise since the introduction of the charge in 2013. The taper rate was also halved from 1% of Child Benefit for every GBP 100 over the threshold to 1% for every GBP 200. This means that whereas previously the charge was equal to the full amount of Child Benefit at GBP 60 000 (GBP 10 000 above the threshold), the charge is now equal to full Child Benefit at GBP 80 000 (GBP 20 000 above the threshold).

From January 2024, an in-year policy change resulted in the rate charged on weekly earnings between the Primary Threshold (GBP 242) and GBP 967 being cut from 12% to 10%, resulting in an average rate of 11.74% over the tax year 2023-24.

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).

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.

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.