What is the Personal Allowance?
Definition of the Personal Allowance
The Personal Allowance is the amount of income each individual is entitled to receive free of tax each year.
The basic Personal Allowance for the tax year 2016/17 is £11,000.
For everyone whose income is over £100,000, the Personal Allowance is reduced by £1 for every £2 received over the £100,000 level. An individual whose income is over £122,000 won't receive any income tax-free; their Personal Allowance will have been reduced to £0.
The Personal Allowance figures change every tax year.
Applying the Personal Allowance
Depending on what income you receive, your Personal Allowance is applied in different ways.
If you're self-employed and have no other income, you'll take your Personal Allowance off your profit before working out how much Income Tax to pay.
If you're a salaried employee, your employer will apply your Personal Allowance to your wages when they are working out how much income tax to deduct from your wages, usually with the help of payroll software. They do this by way of your tax code.
The current Personal Allowance
Find out what the current Personal Allowance is for you on FreeAgent's UK tax rates tracker.
Got questions? Ask Emily!
FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.