Tax Category Tax: calculations, VAT, self-employment tips and more

How to calculate basic rate (BR) tax

Your tax code determines the amount of tax you pay on earned income in the UK. Her Majesty's Revenue and Customs (HMRC) notifies you and your employer of your tax code each year on a pay-as-you-earn (PAYE) coding notice. Most UK residents are entitled to a tax-free personal allowance. If you have two sources of income; for example, you are employed and receiving a pension, your personal allowance is applied to your major source of income first. Once it's used up the additional income is taxed at basic rate, which is 20 percent in 2013/14. If this applies to you, your secondary income will have a tax code of BR.

Add together your total non-savings income for the tax year. This includes taxable state benefits, gross income from employment or pension, rental income on property and earnings from any self-employed or freelance work you do. The tax year runs from 6 April to the following 5 April.

Deduct any tax reliefs you're entitled to, such as interest paid on a qualifying loan or pension contributions paid into your employer's scheme. For example, if your gross income from all sources is £35,000 and you paid £1,200 into your employer's pension scheme, your income after reliefs is £35,000 minus £1,200, or £33,800.

Deduct your personal allowance or blind person's allowance. The basic personal allowance for 2013/14 is £9,440. The personal allowance is reduced for incomes above £100,000, and older taxpayers may receive a higher allowance. In the example, deduct £9,440 from £33,800 to give non-savings taxable income of £24,360.

Multiply your first £32,010 of taxable income by 20 percent to calculate basic rate tax. You pay tax at basic rate on the first £32,010 of taxable income in 2013/14 and at a higher rate above this amount. In the example, multiply £24,360 by 20 percent to calculate your BR tax payable of £4,872.