In simple terms Income Tax is a form of taxation paid on your earnings. Find out how to pay your taxes and how to ensure you pay the correct amount to HM Revenue and Customs.
WHAT IS INCOME TAX? Even though it is a levy paid on your earnings, some types of income are free of taxation. As a rule, taxes are due on things such as:
In most cases, you will not pay taxes on things such as:
Note: This Income Tax overview and guide for beginners is also in Welsh language Treth Incwm (Cymraeg).
Your Personal Allowance is an amount of income you can earn before paying taxes.
The majority of people in the United Kingdom pay their Income Tax through the PAYE system. Employers and pension providers use the Pay As You Earn method to deduct taxes.
They will take National Insurance contributions and Income Tax out of the money before paying your salary or your pension. The current tax codes inform them of the amount to deduct.
HMRC tax codes take account of taxable state benefits. So, owing taxes on them (e.g. the State Pension) means it gets taken by automatic process from other income sources.
What if the State Pension is your only source of income? In this case, HMRC will inform you by letter if you owe them Income Tax. That means you may also need to fill in and send a Self Assessment tax return to them.
Financial affairs can also get more complex (e.g. those with a high income or self-employed). In cases such as these, Income Tax and National Insurance may get paid through Self Assessment. That is why you must fill in a tax return every year.
Earning over your 'trading allowance' or having untaxed income more than £2,500 means you must also fill in a Self Assessment tax return.
You should contact the Income Tax: General Enquiries helpline if your income from renting a property is between £1,000 and £2,500.
This list includes the most common state benefits that are liable for Income Tax:
This list includes the most common state benefits that are not liable for Income Tax:
You can work out if you need to pay Income Tax by following these three basic steps:
Note: You will be a taxpayer is there is anything left after the calculation. Those who are not already paying tax should contact the Income Tax helpline. There is no need to pay tax if there is nothing left and you may be able to claim a tax refund.
In the United Kingdom a tax year runs from the 6th of April to the 5th of April in the following year. There are several ways to check if you are paying the right amount of Income Tax - including an online facility. By checking the current tax year you can:
Note: You should contact HMRC if you are unable to use these services. A tax accountant can also help to check if you are paying the right taxes. The process differs when making Self Assessment corrections to tax returns.
Income Tax Overview and Beginners' Guide for the United Kingdom