£40000 After Tax in 2024

40000 after tax

IN THIS ARTICLE

£40,000 after Income Tax is deducted is £34,514, before National Insurance and any other relevant deductions are made.

Combining Income Tax and NICs deductions, you are likely receive around £30,867 after tax on a £40,000 salary. This is however an estimate and can vary depending on your specific tax code and circumstances.

In this guide, we explain the tax rules for both employed and self-employed workers, and show how to calculate your Income Tax and National Insurance Contributions (NICs) based on an income of £40,000 for the tax years 2023/2024 and 2024/2025.

 

Income Tax Rates and Bands 2024

 

Income Tax on earnings from paid employment or self-employment, as well as from property and pensions, is charged on taxable income at three different rates: the basic rate, the higher rate and the additional rate. These three rates are set at 20%, 40% and 45% respectively.

 
 

Taxable Income

Tax Band

Tax Rate 2023 to 2024

Tax Rate 2024 to 2025

£0 to £12,570 per year Personal Allowance Nil Nil
£12,571 to £37,700 per year Basic Rate 20% 20%
£37,701 to £125,140 per year Higher Rate 40% 40%
Over £125,140 Additional Rate 45% 45%

 
To determine which rate(s) apply to you, you’ll first need to calculate your taxable income.

 

How to calculate your taxable income

 

The amount of Income Tax that you are liable to pay each year will depend on how much of your income exceeds your personal tax allowance and how much falls within each tax band.

The standard personal allowance is £12,570. Your allowance may be higher depending on your circumstances; if you claim, for example, marriage allowance.

Under the standard allowance, the first £12,570 of income will be income tax-free. Earnings above the personal tax-free allowance may then be subject to tax at different rates. This is because you will not pay tax at the same rate on all income, where the more you earn, the higher the rate.

You may also have an additional tax-free allowance on the first £1,000 of income from self-employment, known as your trading allowance, which can be used instead of deducting expenses.

 

£40,000 after tax in 2024/2025

 

To calculate the Income tax payable on a salary of £40,000, start by deducting your personal allowance from your taxable income, ie £40,000 – £12,570 = £27,430. This amount is then subject to Income Tax.

Next, apply the relevant tax rate. For a £40,000 salary in the 2024 to 2025 tax year, a taxable income of £27,430 falls entirely within the basic tax band at 20% income tax, which equals £5,486 before National Insurance.

This means after Income Tax deduction, a £40,000 salary will leave £34,514 before National Insurance.

Importantly, this calculation is for guidance, and other allowances and rates may apply depending on your circumstances. Taking professional advice is recommended to ensure you are working to the correct figures.

 

£40,000 after tax in 2023/24

 

Start by deducting your personal allowance to determine your taxable income, ie £40,000 – £12,570 = £27,430. This is the amount your income tax is calculated on.

Next, apply the relevant tax rate. For a £40,000 salary in the 2023 to 2024 tax year, a taxable income of £27,430 falls entirely within the basic tax band at 20% income tax, which equals £5,486 before National Insurance.

This means after Income Tax deduction, a £40,000 salary will leave £34,514 before National Insurance.

Again, this calculation is for guidance, and professional advice is recommended to ensure you are working to the correct figures with relevant allowances and rates applied.

 

National Insurance (NIC) Rates in 2024

 

What is National Insurance?

 

National Insurance is payable by both employed and self-employed workers over the age of 16. This is a contribution you must make to be eligible for certain benefits and the state pension.

If you work within an employed role, you will pay Class 1 National Insurance. Your employer will also pay a separate tax to HMRC for employing you, as an additional cost to your employer on top of your salary of £40,000.

Employee contributions are referred to as primary Class 1 National Insurance contributions (NICs) and are paid directly out of the employee’s wages via PAYE, while the employer’s contributions are referred to as secondary contributions and are paid by the employer.

If you are an employee, you can check if you are paying or have paid the right amount of Income Tax and National Insurance Contributions online at GOV.UK for any given tax year.

You will need to enter your estimated weekly or monthly profit to get an idea of how much tax and Class 2/4 NICs you will be required to pay. However, this tool assumes that you receive the standard personal allowance and have no other taxable income. It also does not include any payments on account that you may have made for previous tax bills.

 

NIC Rates for Employed Workers in 2024

 

From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages was lowered from 12% to 10%, and since 6 April 2024 has been reduced further to 8%.

This means the main rate of Class 1 NIC for employed is 8% on earnings between £12,570 and £50,270. This means that on a £40,000 salary, an employee would pay £2,400 (8% of £30,430) in National Insurance contributions, in addition to their Income Tax liability.

 

NIC Rates for Self Employed Workers in 2024

 

If you work for yourself, you will pay Class 4 NICs, which is a percentage of the profits you earn.

From 6 April 2024, the main rate of self-employed class 4 NIC is 6%, reduced from the previous 9%. This means if you earned over the lower profit limit of £12,570, you will be liable to pay contributions at a rate of 6%. This rate applies to earnings between £12,570 and £50,270.

On a £40,000 profit, a self-employed person would pay £1,620 (6% of £27,430) in Class 4 NIC.

The flat rate class 2 NIC no longer applies to the self-employed from 6 April 2024.

Unless your earnings from self-employment are straightforward, it is always best to seek the advice and assistance of an accountant specialising in sole traders accounts. In this way, you can be sure that you will be paying the correct amount of both tax and National Insurance, while maximising the available allowances to help minimise your bill.

 

How is Income Tax and National Insurance paid?

 

If you are employed, Income Tax and National Insurance Contributions are collected at source, deducted from your wages by your employer to be paid directly to HMRC. If you are self-employed, Income Tax is paid at the same rate as those in employment, although these are paid a year in arrears through HMRC self-assessment. The National Insurance Contributions payable by the employed or self-employed are calculated slightly differently.

If you are a filing a self-assessment return for the first time, you must register as self-employed with HMRC by 5 October in the second tax year that your business has been running. As the government is rolling out a new scheme to move the tax system fully online, it is best to register for self-assessment online, although you can still register by post. Once you have registered for self-assessment you will be sent a 10-digit Unique Taxpayer Reference (UTR) number and a code to activate your online account.

You must file an online self-assessment return for the purposes of both Income Tax and National Insurance by 31 January of the year following the tax year to which it applies. For 2023/2024, your tax return must be filed by 31 January 2025, if filing online. For postal returns you will need to submit your form by 31 October 2024.

If you also have an employed job role, you may be able to pay any tax due on your self-employed earnings through your existing PAYE tax code. To qualify, you must owe less than £3,000 on your tax bill. You must also submit any paper return by 31 October or an online return by 30 December.

The deadline for payment of any Income Tax and NICs is 31st January of the year following the tax year to which it applies, so the same date for filing your online tax return.

If your tax bill is over £1,000, you will also need to make a payment on account by the same date to cover your potential tax liabilities for the year ahead. This will be assessed at 50% of your bill, payable in two instalments. The second instalment will be due on 31 July.

The deadline for filing your self-assessment is strict. This means that if you are late in filing your return, you will be automatically charged a penalty of £100, with additional penalties at specific intervals, for example, if your return is more than 3, 6 or 12 months late.

Equally, if you are late in paying your tax bill, you may again be charged a penalty, so you must factor in any payment processing time. Where payment falls over a weekend or bank holiday, your payment must reach HMRC on the last working day before that day. Penalties for late payment can be as much as £750, although the penalty can be up to 100% of your tax bill if you deliberately fail to pay. You will also be charged interest on the outstanding balance. As such, it is important to plan ahead, putting money aside each month to cover your tax and NICs, and not forgetting to budget for any payments on account.

 

£40,000 After Tax FAQs

 

Will I take home exactly £40,000 after tax?

 

With a gross salary of £40,000, you won’t take home the full amount as tax will be payable. Various deductions are applied to your salary before you receive your net pay. These deductions primarily include Income Tax and National Insurance Contributions (NICs). Other deductions may also apply depending on your circumstances.

 

How much Income Tax will be deducted from £40,000?

 

The exact amount of Income Tax depends on your tax code. However, with a standard tax code and assuming you don’t exceed the Additional Rate Threshold (currently £125,140), you’d likely pay around £5,500 in Income Tax for a £40,000 salary.

 

What are National Insurance Contributions (NICs)?

 

NICs are social security contributions that fund the NHS, state pensions, and other benefits. Both you and your employer contribute NICs.

 

How much will National Insurance Contributions be on a £40,000 salary?

 

You’ll typically pay Class 1 NICs on your earnings. As of April 2024, the rate is 13.8% on earnings above the Lower Earnings Limit (£123 per week or £533 per month). This translates to roughly £3,634 in NICs for a £40,000 salary.

 

Is there a way to calculate my exact take-home pay?

 

You can use online tax calculators provided by government websites or financial institutions. These tools consider your tax code and other factors for a more precise calculation. Here’s an example: https://www.gov.uk/estimate-income-tax

 

Can I reduce the amount of tax I pay?

 

While your salary itself might not be directly changeable, there might be ways to minimise your tax bill. Exploring tax-efficient benefits offered by your employer or claiming tax reliefs you qualify for can potentially lower your taxable income. It’s always advisable to consult a qualified adviser for personalised tax advice.

 

Legal disclaimer

 

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.

Before acting on any of the information contained herein, expert professional advice should be sought.

 

Author

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.

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