How do I work out how much tax I owe?

Working out how much tax you owe can seem complicated, but it becomes much simpler once you understand how HMRC calculates your income, allowances, and deductions. Whether you are employed, self employed, or earning from multiple sources, knowing how to estimate your tax bill helps you plan ahead and avoid unexpected payments.

This guide explains how to calculate your income tax and National Insurance, how tax bands work, and what steps to take to make sure you pay the right amount.

Step 1: Work out your total income

Your total income is everything you earn during the tax year (from 6 April to 5 April). This can include:

• Salary or wages from employment.

• Profits from self employment or freelance work.

• Rental income from property.

• Dividends from investments.

• Pensions or state benefits.

If you have more than one source of income, you must combine them to calculate your total taxable income.

Step 2: Deduct allowable expenses or reliefs

Not all of your income is taxable. You can deduct certain allowable expenses and reliefs depending on how you earn your money.

For example:

• Self employed people can deduct business expenses such as office costs, travel, and equipment.

• Landlords can deduct property expenses such as letting agent fees, insurance, and repairs.

• Employees can claim tax relief for work expenses not reimbursed by their employer, such as professional subscriptions or business travel.

You may also be entitled to reliefs such as pension contributions, charitable donations under Gift Aid, or marriage allowance transfers.

The result after these deductions is your taxable income.

Step 3: Apply your personal allowance

Every individual in the UK receives a personal allowance, which is the amount you can earn before paying any income tax.

For the 2024/25 tax year, the standard personal allowance is £12,570.

If your total income is below £12,570, you will not owe any income tax. If you earn more, you only pay tax on the amount above that threshold.

For those earning over £100,000, the personal allowance is reduced by £1 for every £2 earned above £100,000.

Step 4: Apply the correct tax bands

Once you know your taxable income, apply the relevant tax bands. For England, Wales, and Northern Ireland in 2024/25:

• Basic rate (20%) on income between £12,571 and £50,270.

• Higher rate (40%) on income between £50,271 and £125,140.

• Additional rate (45%) on income over £125,140.

In Scotland, different income tax bands apply.

Example calculation

If you earn £40,000 in the year:

• First £12,570 is tax-free (personal allowance).

• Remaining £27,430 is taxed at 20%.

• You owe £5,486 in income tax (£27,430 x 20%).

If you earn £70,000:

• First £12,570 tax-free.

• £37,700 taxed at 20% = £7,540.

• £19,730 taxed at 40% = £7,892.

• Total income tax = £15,432.

Step 5: Add National Insurance

National Insurance (NI) is separate from income tax but usually paid alongside it. The type and amount you pay depend on whether you are employed or self employed.

For employees (Class 1 National Insurance)

Paid automatically through PAYE.

• 8% on earnings between £12,570 and £50,270.

• 2% on anything above £50,270.

For self employed (Class 2 and Class 4 National Insurance)

Paid through Self Assessment.

• Class 2: £3.45 per week if profits are over £12,570.

• Class 4: 9% on profits between £12,570 and £50,270, and 2% on profits above £50,270.

Combine these with your income tax to calculate your total liability for the year.

Step 6: Include other taxes or adjustments

Depending on your circumstances, you may also need to account for:

• Dividend Tax if you receive dividends above £500.

• Capital Gains Tax if you sold investments or property at a profit.

• Student loan repayments if your income exceeds the repayment threshold.

Each type of income is taxed separately using its own rates and allowances.

Step 7: Subtract tax already paid

If you are an employee, your employer will already have deducted tax under PAYE. You can find these figures on your payslips or your P60 at the end of the tax year.

If you are self employed, you may have made payments on account towards your tax bill. These advance payments reduce what you owe for the current year.

Your total tax due is your calculated liability minus any tax already paid.

Step 8: Check for tax relief or refunds

If you have overpaid tax, you can claim a refund from HMRC. This often happens if you:

• Changed jobs partway through the year.

• Had income below the personal allowance.

• Claimed expenses or reliefs that reduced your taxable income.

You can check this using your Personal Tax Account on GOV.UK or by submitting a Self Assessment tax return.

Step 9: Use online calculators or software

HMRC’s website provides online tax calculators to estimate how much tax you owe. Accounting software such as Xero, QuickBooks, and FreeAgent can also help automate calculations, especially for self employed individuals.

An accountant can review your figures to ensure accuracy and help identify any reliefs or deductions you may have missed.

Step 10: Plan for payments and deadlines

If you complete a Self Assessment tax return, you must:

• File your return by 31 January following the end of the tax year.

• Pay your tax bill by the same date.

• Make payments on account by 31 January and 31 July if your tax bill exceeds £1,000.

Failure to meet these deadlines can result in interest or penalties. Setting aside money throughout the year helps you stay prepared.

Example summary

Let’s say you are a self employed consultant earning £55,000 with £5,000 of allowable expenses.

• Income: £55,000

• Expenses: £5,000

• Taxable profit: £50,000

• Income tax: 20% of (£50,000  £12,570) = £7,486

• Class 2 NI: £3.45 x 52 = £179

• Class 4 NI: 9% of (£50,000  £12,570) = £3,369

• Total tax due: £7,486 + £179 + £3,369 = £11,034

This is what you would pay for the tax year, subject to any prior payments or reliefs.

The role of an accountant

An accountant can help you:

• Calculate your income tax and National Insurance accurately.

• Identify deductible expenses.

• Claim reliefs for pensions, home working, or capital allowances.

• File returns and make payments on time.

Professional advice ensures you avoid underpayments or penalties and take advantage of all available tax-saving opportunities.

The bottom line

Working out how much tax you owe involves adding up your income, deducting allowable expenses, and applying the correct tax rates and National Insurance. Employees usually have this handled through PAYE, while self employed individuals calculate and pay it through Self Assessment.

Keeping accurate records and understanding the current tax bands will help you estimate your liability confidently. With good organisation—and professional help if needed—you can stay compliant, avoid surprises, and manage your tax efficiently all year round.