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Income Tax

If you live in the UK, you pay income tax on money that you earn or receive. Income tax is paid directly to HMRC and, unlike other taxes, there is no minimum age at which a person becomes eligible to pay income tax. 

On this page you will find information about:

What is Income Tax?

  • Income tax is paid on money that you earn or receive in the UK.

  • There is no minimum age for paying income tax and it goes straight to HMRC.

  • The amount of income tax you owe depends on the amount you earn.

  • Some earnings are not taxed at all – these are called ‘non-taxable earnings’.

Common taxable income sources:

  • PAYE income from normal employment
  • Self employed income
  • Pension income
  • Property rental income
  • Some, but not all, Social Security benefits
  • Investment income for example Share dividends
  • Please find a more in depth list of which income has to be taxed and non taxable income in our Tax Glossary.

Income Tax is used to pay for services provided by the UK government for example education, transport and healthcare.

National insurance is not classed as a tax and is a contribution deducted to specifically pay for state pensions and some state benefits.

It is possible to overpay and underpay income tax and it is up to you to check your income tax position to make sure that you are paying the correct amount of tax. If you have overpaid income tax, you can submit a claim for an income tax rebate. This applies to the current tax year and can be backdated for four tax years.

How is Income Tax calculated?

When calculating income tax, all your income is taken into consideration. However, there are various allowances and certain sources of income are tax-free

We have broken it down into four simple steps:

1.Work out your total taxable income

Add together all taxable income you get, including: earnings, business profits if you are self-employed, some forms of savings interest, investment returns, income from rental property and certain benefits.

2. Take off any tax-free income

Tax-free income includes many state benefits, for example, the state pension, disability living allowance, child benefit, child tax credits and working tax credits. Many other sources of income may also be tax-free. These include interest on ISAs or money awarded by courts. So takeaway any of these amounts from your income total.

3. Deduct any relevant tax relief from your total income

Depending on your circumstances, this figure may include professional fees, business mileage, and money that you have spent on job expenses such as tools or equipment.

4. Deduct any relevant tax allowances from the remaining total

There are a range of different tax allowances that apply to taxpayers in a variety of situations. One that everyone is entitled to is the Personal Allowance. This is how much you are allowed to earn before you pay any income tax at all. For the 2018-19 tax year, your Personal Allowance is £11,850. This means you can earn up to £11,850 in a tax year without owing any income tax. You should take this amount away from your total income figure before working out how much income tax you should be paying. If you are an employee taxed under the PAYE scheme, your tax allowances are normally already taken into account before you receive your wages.

How much income tax do I need to pay?

When you know your total taxable income, you can work out how much income tax you owe HMRC.

The amount of income tax payable depends on how much you earn. In 2018-19 tax year the income tax rates are as follows:

  • 20% basic rate, on all annual income up to £46,350
  • 40% higher rate, on all annual income from £46,351 to £150,000
  • 45% additional rate, on all annual income over £150,000

Many sources of income, including bank and building society interest, and wages received under the PAYE scheme, have already been taxed. If this is the case the original gross income (the total received before tax) should be considered when calculating your total taxable income.

Income Tax Allowances

It is important to know what the income tax allowances, income tax rates and taxable bands are, to make sure that you are paying the right amount of income tax.

Income tax allowances show the amount of tax free allowance you are given in any one tax year. If you earn under the tax free personal allowance you should not pay income tax. If you earn over the tax free allowance income tax will be payable.

Tax Year 2015-16 2016-17 2017-18 2018-19
Personal Allowance £10,600 £11,000 £11,500 £11,850
Personal Allowance for people aged 65-74 £10,600 £11,000 £11,500 £11,850
Personal Allowance for people aged 75 and over £10,660 £11,000 £11,500 £11,850

Income Tax Rates and Taxable Bands

Income Tax rates show the percentage of income tax you will pay in each taxable band.

Find which tax band your annual income is in to work out what level of income tax you pay.

Income Tax rates & taxable bands 2015-16 2016-17 2017-18 2018-19
Starting rate for savings Up to £5,000 Up to £5,000 Up to £5,000 £5,000
Basic rate: 20% £0-£31,785 £0-£32,000 £0-£33,500 £0-£34,500
Higher rate: 40% £31,786 – £150,000 £32,001 – £150,000 £33,501 – £150,000 £34,501 – £150,000
Additional rate: 45% Over £150,000 Over £150,000 Over £150,000 Over £150,000

How do I pay income tax?

Most income tax is paid when the income is initially received. This includes wages received under the PAYE scheme and interest paid on UK bank and building society accounts.

In some cases income may not be taxed at the source. Common examples include: if you are self-employed, you receive money from overseas, you receive money for rental property or you receive interest from certain types of savings accounts. If this is the case, your income tax is calculated according to the information on your Self Assessment tax return. HMRC will then confirm the amount of tax that you owe.

You can pay your tax bill in various ways, including: online by debit or credit card, internet or telephone banking, budget payment plan, bank giro, international bank transfer or at the Post Office. Full details of payment methods will be provided with your tax calculation, or are available from HMRC.

The deadline for paying your tax bill varies according to how and when you submit your Self Assessment tax return. The deadline will be stated on your Self Assessment Statement.

For further Tax information, please follow the links below:

  • Tax Codes includes:
    Where do I find my Tax Code?
    New Tax Codes
    What does my tax code mean?
    Different Tax Codes
    More than one job
    Emergency Tax Codes

  • Emergency Tax Codes includes:
    What is an Emergency Tax Code?
    What does an emergency Tax Code look like?
    Why do I have a BR/ Emergency Tax Code?
    Can I get a Tax Refund if I have paid Emergency Tax?

  • Construction Industry Scheme includes:
    CIS For Subcontractors
    CIS For Contractors (Employers)

  • VAT (Value Added Tax) includes:
    What is VAT?
    When do I pay VAT?
    How much VAT do I need to pay?
    Do I need to register for VAT?
    How do I pay VAT?
    Can I claim VAT back?

  • Self Assessment includes:
    What is Self Assessment?
    Do I need to complete a Self Assessment tax return?
    How do I get a Self Assessment tax return form?
    How do I register for Self Assessment?
    Can I register for Self Assessment on behalf of a company or trust?
    What is a Unique Tax Reference number (UTR)?
    How do I get a Unique Tax Reference (UTR) number?
    How do I complete my Self Assessment tax return online?
    Can I complete my Self Assessment tax return on paper?
    Record keeping
    Self Assessment Tax return deadlines
    What if I submit my tax return late?
    What if I submit my tax return incorrectly?
    How is my tax calculated?
    Do I need to check my tax calculation?

  • National Insurance includes:
    What is National Insurance?
    What are the different types of National Insurance?
    Who pays National Insurance?
    What is National Insurance used for?
    Do your National Insurance payments affect your Pension and Benefits?
    How much National Insurance should I pay?

  • Pension Tax includes:
    Do I have to pay tax on my pension?
    Do I have to pay tax on my state pension?

  • Corporation Tax includes:
    Who needs to pay Corporation Tax?
    How much Corporation Tax do I need to pay?
    How do I pay Corporation Tax?

  • Inheritance Tax includes:
    What is Inheritance Tax?

  • Capital Gains Tax includes:
    What is Capital Gains Tax?

More Info

Tax Refunds

To help you find if you are entitled to a tax refund you can use the TaxBanana Tax Refund Calculator.

It is also worth considering if your tax code is correct. If your tax code is incorrect you can pay too much income tax or too little.