PAYE & Payroll

Tax Credit

An amount that reduces the Income Tax you pay.

Definition

Tax credits reduce your Income Tax liability. They are subtracted from your gross Income Tax to arrive at net Income Tax due. Common credits include the Personal Tax Credit and the Employee (PAYE) Tax Credit.

Why it matters

It directly reduces Income Tax due, so small changes can have a clear net pay effect.
It helps explain why two people on the same salary can have different net pay.

Common use cases

Comparing net pay scenarios
Understanding PAYE credits on a tax certificate
Estimating the impact of starting or changing employment

Related terms

PAYE Standard Rate Cut-Off Point

Disclaimer

This definition is for informational purposes only and does not constitute tax, legal, or financial advice. Rules may change and outcomes depend on your circumstances.

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Definition

Why it matters

It directly reduces Income Tax due, so small changes can have a clear net pay effect.
It helps explain why two people on the same salary can have different net pay.

Common use cases

Comparing net pay scenarios
Understanding PAYE credits on a tax certificate
Estimating the impact of starting or changing employment

Related terms

PAYE Standard Rate Cut-Off Point

Disclaimer

This definition is for informational purposes only and does not constitute tax, legal, or financial advice. Rules may change and outcomes depend on your circumstances.