The basic rate tax band is one of the THREE marginal tax bands in the UK tax system and has the lowest tax rate. The basic band tax rate as of the current tax year, that is 2021/22 is set at 20%. Here is what you need to know about the basic rate tax.

What Is Basic Rate Tax?

In simple words, the basic rate tax is the tax charged on the first £37,700 income of an individual after deducting the personal allowance that currently stands at £12,570.

For example, if an individual has earned an income of let’s say £100,000 in the year, the first £12,570 will be taxed at 0% since personal allowance is available in full. For the remaining £87,430 (100,000-12,570), the first £37,700 will be taxed at the basic rate (20%), and the remaining £49,730 will be taxed at 40%.

The basic rate tax is applied to the first £37,700 earnings of every individual and there is no cap (limit) on the earnings that may eat or restrict the basic rate tax.

It is noteworthy to mention here that the basic rate tax is applied to the taxable income of the individual and you may need to deduct a lot of tax reliefs/ allowances before calculating your tax liability.

Basic Rate Tax UK

In the UK, the basic rate tax band is currently £37,700 (for the tax year 2021/22), which is going to remain the same for the upcoming tax year (2022/23) and up until the tax year 2025/26 as per the HMRC’s official statement.

Conclusion —Basic Rate Tax

There are THREE tax bands in the UK tax system and the first one, that has the lowest tax rate (20%)  is the basic rate tax band. After deducting tax reliefs and personal allowance, the first £37,700 is taxed at a relaxed 20% tax rate.

Additional Income over the basic tax band up to £150,000 is taxed at 40% and anything over £150,000 is taxed at 45%.