{"id":20298,"date":"2024-11-28T15:02:13","date_gmt":"2024-11-28T15:02:13","guid":{"rendered":"https:\/\/www.sage.com\/en-gb\/blog\/?p=20298"},"modified":"2025-05-07T14:53:49","modified_gmt":"2025-05-07T13:53:49","slug":"how-much-can-you-earn-before-tax","status":"publish","type":"post","link":"https:\/\/www.sage.com\/en-gb\/blog\/how-much-can-you-earn-before-tax\/","title":{"rendered":"Earning before tax explained: How much can you earn tax-free?"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-gb\/blog\/category\/money-matters\/\" class=\"entry-header__link\">Money Matters<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tEarning before tax explained: How much can you earn tax-free?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t<p class=\"entry-header__description\">\n\t\t\t\t\t\t\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2024-11-28T15:02:13+00:00\">28 November, 2024<\/time><\/span><span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"Earning before tax explained: How much can you earn tax-free?\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-gb\/blog\/how-much-can-you-earn-before-tax\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n<\/header>\n\n\n<div class=\"wp-block-post-author\">\n\t\t\t<div class=\"co-authors\">\n\t\t\t\n\t\t<div class=\"entry-author-wrapper\">\n\t\t\t<a class=\"entry-author\" href=\"https:\/\/www.sage.com\/en-gb\/blog\/author\/sarahcheesman\/\">\n\t\t\t\t<img loading=\"lazy\" decoding=\"async\" width=\"40\" height=\"40\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman-350x350.png\" class=\"entry-author__image\" alt=\"Sarah Cheesman\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman-350x350.png 350w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman-768x768.png 768w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman-810x810.png 810w, https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2024\/07\/Sarah-Cheesman.png 1080w\" sizes=\"auto, (max-width: 40px) 100vw, 40px\" \/>\t\t\t\t<span class=\"entry-author__name\">Sarah Cheesman<\/span>\n\t\t\t<\/a>\n\n\t\t\t\t\t<\/div>\n\n\t\t\t\t<\/div>\n\t\t<\/div>\n\n\n\n<p>When it comes to managing your finances as a sole trader or small business owner, understanding your earning before tax is essential. Knowing how much you can earn before paying income tax can help you to plan ahead and avoid surprises when tax season rolls around.<\/p>\n\n\n\n<p>The good news is that there&#8217;s a specific threshold\u2014called the Personal Allowance\u2014that allows you to earn a certain amount tax-free. In this article, we&#8217;ll explain what counts as taxable income, how to calculate your income tax, and the steps you can take to reduce your tax bill.<\/p>\n\n\n<?xml encoding=\"utf-8\" ?><div class=\"wp-block-yoast-seo-table-of-contents yoast-table-of-contents\"><ul><li><a href=\"#h-what-counts-as-taxable-income\" data-level=\"2\">What counts as taxable income?<\/a><\/li><li><a href=\"#h-the-personal-allowance-how-much-you-can-earn-before-paying-tax\" data-level=\"2\">The Personal Allowance: How much you can earn before paying tax<\/a><ul><li><a href=\"#h-example-how-tax-works-in-practice\" data-level=\"3\">Example: How tax works in practice<\/a><\/li><\/ul><\/li><li><a href=\"#h-what-happens-if-your-income-increases\" data-level=\"2\">What happens if your income increases?<\/a><\/li><li><a href=\"#h-tax-free-income-and-specific-deductions\" data-level=\"2\">Tax-free income and specific deductions<\/a><\/li><li><a href=\"#h-missed-deadlines-and-avoiding-penalties\" data-level=\"2\">Missed deadlines and avoiding penalties<\/a><\/li><li><a href=\"#h-final-thoughts\" data-level=\"2\">Final thoughts<\/a><\/li><\/ul><\/div>\n\n\n<div class=\"single-cta\">\n\t<a\n\t\tclass=\"button button--primary gate-b070c479-ac3c-48cf-b77a-f696b6d06d6b\"\n\t\trole=\"button\"\n\t\tdata-button-location=\"content_area\"\n\t\thref=\"#gate-b070c479-ac3c-48cf-b77a-f696b6d06d6b\"\n\t>Get the support you need with your tax returns by downloading your free copy of Get Self Assessment right each time<\/a>\n<\/div>\n\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-counts-as-taxable-income\">What counts as taxable income?<\/h2>\n\n\n\n<p>First things first: not all the money you earn is automatically subject to income tax. The tax system in the UK allows you to earn a certain amount tax-free, and only income above this threshold is taxed. Let&#8217;s take a closer look at what counts as taxable income.<\/p>\n\n\n\n<p>Income from your business activities is taxed, but HMRC allows you to deduct certain costs, called <a href=\"https:\/\/www.sage.com\/EN-GB\/BLOG\/ALLOWABLE-EXPENSES-SELF-ASSESSMENT-TAX-RETURN\/\" rel=\"noopener noreferrer\">allowable expenses<\/a>, from your total earnings. These expenses include things like equipment, office supplies, and even business travel costs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-the-personal-allowance-how-much-you-can-earn-before-paying-tax\">The Personal Allowance: How much you can earn before paying tax<\/h2>\n\n\n\n<p>The most important figure to know is the Personal Allowance\u2014this is the amount you can earn in a tax year before you need to start paying income tax. For most people, the Personal Allowance is \u00a312,570 for the 2024\/25 tax year. This means you can earn up to this amount without paying any income tax.<\/p>\n\n\n\n<p>If your income is above this threshold, you will pay tax on the excess. The rate you pay depends on how much you earn, for example:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Basic rate (20%): <\/strong>earnings between \u00a312,571 and \u00a350,270<br><\/li>\n\n\n\n<li><strong>Higher rate (40%):<\/strong> earnings between \u00a350,271 and \u00a3150,000<br><\/li>\n\n\n\n<li><strong>Additional rate (45%):<\/strong> earnings over \u00a3150,000<br><\/li>\n<\/ul>\n\n\n\n<p>The Personal Allowance applies to most taxpayers, but there are some exceptions. If you earn over \u00a3100,000, your Personal Allowance starts to decrease by \u00a31 for every \u00a32 you earn above that threshold. So, if your income is \u00a3125,140 or more, you won&#8217;t receive any Personal Allowance. This is something to keep in mind if your earnings start to push towards the higher end of the income scale.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-example-how-tax-works-in-practice\">Example: How tax works in practice<\/h3>\n\n\n\n<p>Let&#8217;s break it down with a quick example. Imagine you&#8217;re a sole trader and you earn \u00a320,000 in the 2024\/25 tax year. Here&#8217;s how your tax might look:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>First, you subtract your Personal Allowance (\u00a312,570) from your total earnings, which leaves you with \u00a37,430 in taxable income.<br><\/li>\n\n\n\n<li>Next, you&#8217;ll pay the basic rate of 20% on that \u00a37,430, which comes to \u00a31,486.<br><\/li>\n<\/ul>\n\n\n\n<p>So, while your total earnings are \u00a320,000, you&#8217;ll only pay tax on \u00a37,430 of that, and your total tax bill will be \u00a31,486. This doesn&#8217;t include any other potential deductions or allowances, like if you&#8217;re eligible for Marriage Allowance or Blind Person&#8217;s Allowance.<\/p>\n\n\n\n<p>Want to find out more about allowable expenses and other ways to reduce your taxable income? Take a look at our <a href=\"https:\/\/www.sage.com\/EN-GB\/BLOG\/ALLOWABLE-EXPENSES-SELF-ASSESSMENT-TAX-RETURN\/\" rel=\"noopener noreferrer\">helpful guide<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-happens-if-your-income-increases\">What happens if your income increases?<\/h2>\n\n\n\n<p>If your income exceeds the Personal Allowance and moves into the higher tax bands, you&#8217;ll pay tax at a higher rate. Let&#8217;s say your income rises to \u00a335,000 in the same tax year. Here&#8217;s how that would affect your tax:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>First, you&#8217;ll subtract the Personal Allowance (\u00a312,570) from your \u00a335,000 income. That leaves you with \u00a322,430 in taxable income.<br><\/li>\n\n\n\n<li>The first \u00a322,430 will be taxed at the basic rate of 20%, which gives you \u00a34,486 in tax.<br><\/li>\n\n\n\n<li>In this case, since your income doesn&#8217;t reach the higher rate tax band, you won&#8217;t pay any higher rate tax.<br><\/li>\n<\/ul>\n\n\n\n<p>Your total tax bill would be \u00a34,486. As you can see, increasing your income will naturally lead to a higher tax bill, but there are still opportunities to reduce this by properly claiming allowable expenses.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-tax-free-income-and-specific-deductions\">Tax-free income and specific deductions<\/h2>\n\n\n\n<p>The Personal Allowance isn&#8217;t the only tax break available to you. There are a few other things that can reduce your taxable income, such as:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Business expenses:<\/strong> as mentioned earlier, any money you spend on running your business can be deducted from your earnings. This can include things like marketing costs, rent for office space, and even your business insurance premiums. If you&#8217;re unsure what qualifies, be sure to check out the <a href=\"https:\/\/www.sage.com\/en-gb\/blog\/allowable-expenses-self-assessment-tax-return\/\" target=\"_blank\" rel=\"noopener noreferrer\">guide on allowable expenses<\/a> for Self Assessment. These deductions lower your taxable income and, as a result, reduce the tax you owe.<br><\/li>\n\n\n\n<li><strong>Tax-free savings allowances:<\/strong> if you have savings, you may also benefit from certain tax-free allowances, like the Personal Savings Allowance (up to \u00a31,000 for basic-rate taxpayers). For instance, if you earn interest on your savings, you won&#8217;t pay tax on the first \u00a31,000 of interest (for basic-rate taxpayers) or \u00a3500 (for higher-rate taxpayers).<br><\/li>\n\n\n\n<li><strong>Pension contributions:<\/strong> paying into a pension scheme not only helps you save for the future, but it can also reduce your taxable income for the current year. Contributions to a personal pension scheme are tax-deductible, so you&#8217;ll be taxed on a smaller income, which can reduce your tax bill significantly.<br><\/li>\n\n\n\n<li><strong>Marriage Allowance:<\/strong> if you&#8217;re married or in a civil partnership, and one of you earns below the Personal Allowance threshold, the other partner can transfer part of their unused allowance. This can reduce the overall tax burden for couples.<br><\/li>\n\n\n\n<li><strong>Blind Person&#8217;s Allowance:<\/strong> if you are registered as blind, you are eligible for an additional allowance. This can increase the amount of money you can earn tax-free.<br><\/li>\n\n\n\n<li><strong>Research and development tax relief:<\/strong> if your business is involved in research and development (R&amp;D) activities, you may be eligible for R&amp;D tax credits. This can result in a reduction in your taxable income and a refund from HMRC.<br><\/li>\n<\/ol>\n\n\n\n<p>These deductions and allowances can add up, so it&#8217;s worth investigating all of them to ensure you&#8217;re not paying more tax than necessary.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-missed-deadlines-and-avoiding-penalties\">Missed deadlines and avoiding penalties<\/h2>\n\n\n\n<p>If you&#8217;ve missed the Self Assessment deadline, don&#8217;t panic\u2014there are steps you can take to minimise penalties. For example, HMRC offers a 30-day &#8220;grace period&#8221; for late filings, so make sure you <a href=\"https:\/\/www.sage.com\/EN-GB\/BLOG\/FILE-A-TAX-RETURN-ONLINE\/\" target=\"_blank\" rel=\"noopener noreferrer\">file your tax return<\/a> as soon as possible. It&#8217;s always better to file late than not at all, and if you need help getting back on track, you can find more details in our blog on <a href=\"https:\/\/www.sage.com\/EN-GB\/BLOG\/MISSED-SELF-ASSESSMENT-DEADLINE\/\" target=\"_blank\" rel=\"noopener noreferrer\">missed Self Assessment deadlines<\/a>.<\/p>\n\n\n\n<p>HMRC charges a \u00a3100 plus interest, late filing penalty if you miss the deadline, but this can increase the longer you leave it. After 3 months, additional daily penalties of \u00a310 plus interest, per day can apply, up to a maximum of \u00a3900. After 6 months, further penalties are applied based on the amount of tax you owe.<\/p>\n\n\n\n<p>The key is to file as soon as possible to avoid further penalties. If you&#8217;re struggling to meet deadlines or have missed one, reach out to HMRC or consult a tax advisor for advice.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-final-thoughts\">Final thoughts<\/h2>\n\n\n\n<p>Now that you know how much you can earn before paying tax, the next step is to make sure you&#8217;re filing your Self Assessment tax return correctly. Knowing how much tax you&#8217;ll need to pay will help you plan your finances better and avoid any unexpected bills down the line.<\/p>\n\n\n\n<p>Remember, the Personal Allowance for the 2024\/25 tax year is \u00a312,570, so as long as your income stays below that, you won&#8217;t owe any income tax. If you&#8217;re not sure about your situation, it&#8217;s always a good idea to talk to an accountant or check out resources like our Self Assessment guides for more advice.<\/p>\n\n\n\n<p>It&#8217;s also worth noting that <a href=\"https:\/\/www.sage.com\/EN-GB\/BLOG\/SELF-ASSESSMENT-ENDING-MAKING-TAX-DIGITAL-SOLE-TRADERS\/\" target=\"_blank\" rel=\"noopener noreferrer\">Making Tax Digital<\/a> is changing the way sole traders and small business owners file their taxes. As these new rules take effect in the coming years, staying compliant will mean keeping digital records and submitting updates online.<\/p>\n\n\n\n<p>Tax can be complicated, but with the right <a href=\"https:\/\/www.sage.com\/en-gb\/size\/self-employed\/\" target=\"_blank\" rel=\"noopener noreferrer\">knowledge, planning, and support<\/a>, you can keep your finances running smoothly.<\/p>\n\n\n\n \n<div class=\"single-cta gated-content\">\n\t<div class=\"single-cta__positioner\">\n\t\t<div class=\"single-cta__wrapper has-dark-background-color\">\n\t\t\t<div class=\"single-cta__content\">\n\t\t\t\t\t\t\t\t<h2 class=\"single-cta__title h3\">E-Book: Get Self Assessment right<\/h2>\n\n\t\t\t\t\t\t\t\t\t<div class=\"single-cta__description\">\n\t\t\t\t\t\t<p><!-- wp:paragraph --><\/p>\n<p class=\"\">Download your free copy of this essential guide and get the support you need with your Self Assessment tax returns.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t<a\n\t\t\t\t\t\thref=\"#gate-b070c479-ac3c-48cf-b77a-f696b6d06d6b\"\n\t\t\t\t\t\tclass=\"single-cta__button button button--primary\"\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t>Download your free guide<\/a>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t<div class=\"single-cta__downloads\">\n\t\t\t\t\t\n\t\t\t\t\t1,200 readers have downloaded this guide\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\n\t\t\t\t\t<img decoding=\"async\" width=\"1440\" height=\"810\" src=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1146164056-1440x810.jpg\" class=\"single-cta__image\" alt=\"Woman applying for business credit line\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1146164056-1440x810.jpg 1440w\" sizes=\"auto, (min-width: 48em) 33vw, 100vw\" \/>\t\t\t<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>How much can you earn before having to pay tax? As a sole trader or small business owner, understanding when you start owing income tax is crucial.<\/p>\n","protected":false},"author":1813,"featured_media":11653,"menu_order":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_sage_video":false,"post_featured_image_hide":false,"footnotes":""},"categories":[6],"tags":[27],"business_type":[4],"lilypad":[],"context":[],"industry":[],"persona":[],"imagine_tag":[109],"coauthors":[361],"class_list":["post-20298","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money-matters","tag-tax","business_type-small-business"],"sage_meta":{"region":"en-gb","author_name":"Sarah Cheesman","featured_image":"https:\/\/www.sage.com\/en-gb\/blog\/wp-content\/uploads\/sites\/10\/2022\/04\/GettyImages-1282134863.jpg","imagine_tags":{"109":"Small business"}},"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice UK","distributor_original_site_url":"https:\/\/www.sage.com\/en-gb\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/20298","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/users\/1813"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/comments?post=20298"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/posts\/20298\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media\/11653"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/media?parent=20298"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/categories?post=20298"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/tags?post=20298"},{"taxonomy":"business_type","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/business_type?post=20298"},{"taxonomy":"lilypad","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/lilypad?post=20298"},{"taxonomy":"context","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/context?post=20298"},{"taxonomy":"industry","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/industry?post=20298"},{"taxonomy":"persona","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/persona?post=20298"},{"taxonomy":"imagine_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/imagine_tag?post=20298"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.sage.com\/en-gb\/blog\/api\/wp\/v2\/coauthors?post=20298"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}