Please check if my income tax example is correct

I am working on a piece about UK Income Tax for self employed people. Could somebody please check my approach and figures to ensure that my example is correct?

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Let us assume that, for a given financial year, the tax threshold, brackets, and percentages are as follows:

· Tax Threshold: £13,000

o Rate: 0%

· Basic rate: £13,001 - £50,000

o Rate: 20%

· Higher rate: £50,001 - £125,000

o Rate: 40%

· Additional rate: £125,001 and above

o Rate: 45%

In his first year as a sole trader, William Smith earns £12,500. As this does not breach the tax threshold, he does not pay any tax at all for that year.

In his second year, he earns £25,000. This places him in the first bracket, called here the basic rate, with a 20% tax rate. This does not mean that he pays tax of 20% of his £25,000 earnings, but 20% of the earnings above the threshold. In effect, we subtract the tax threshold from the earnings to find the taxable profit:

£25,000 - £13,000 = £12,000

(total income) – (tax threshold) = (taxable profit)

This means that, in his second year, William Smith must pay tax equal to 20% of the £12,000 over the threshold, meaning that he owes £2,400 in income tax:

£12,000 * 20% = £2,400

(taxable profit) * (tax rate percentage) = (tax owed)

Things get a little more complicated in his third year. Now trading as Smith Creative Design, he earns £52,000, taking him up into the second tax bracket, here called the higher rate. The higher rate carries a tax obligation of 40%. However, as with the previous example, this 40% only applies to the earnings within that bracket.

To work out how much tax he owes, we must break it down by bracket. This is done in reverse order:

The higher tax bracket covers earnings from £50,001 to £125,000. As Smith Creative Design earned £52,000, £1,999 of this is within this higher bracket. This draws a 40% tax rate:

Higher rate tax: £1,999 * 40% = £799.60

(taxable earning within the higher bracket) * (higher bracket tax rate) = (tax owed)

With this stage completed, we must take the remaining income and subtract the tax allowance threshold to find the income within the basic bracket:

£50,001 - £13,000 = £37,001

(remaining income) – (tax threshold) = (basic bracket income)

This means that £37,001 of the remaining income is subject to the 20% tax rate of the basic bracket:

Basic rate tax: £37,001 * 20% = £7,400.20

(basic bracket income) * (basic bracket tax rate) = (tax owed)

Finally, we can combine these two totals to find the combined tax requirement:

£799.60 + £7,400.20 = £8,199.80

(higher tax bracket income) + (basic tax bracket income) = (total tax owed)

Total Earnings: 52000

Tax owed:

Higher rate Threshold: 1999, tax payable: 799.60

Basic rate Threshold: 37001, tax payable: 7400.20

Personal Tax allowance threshold: 13000, tax payable: 0

Total Tax payable on 52000: 8199.80

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