Income tax is a tax on most forms of income that individuals and some trusts receive. This includes earnings from employment, self-employment profits, pensions, rental income, certain state benefits, interest, and dividends. Not all income is taxable: income from ISAs, Premium Bond prizes, and lottery winnings are exempt. The amount of tax payable depends on your taxable income, which is calculated after deducting allowances and reliefs. Income tax is one of the UK government largest sources of revenue, funding public services such as the NHS, schools, and infrastructure.

https://www.gov.uk/income-tax

Your Personal Allowance is the amount of income you can earn each tax year before you start paying income tax. For the 2025/26 tax year, the standard allowance is £12,570. If your adjusted net income exceeds £100,000, your allowance is reduced by £1 for every £2 earned above this threshold, which means that anyone earning over £125,140 has no allowance. The allowance may also be affected by factors such as Blind Person’s Allowance or Marriage Allowance transfer. The Personal Allowance is set by the UK government and may change in future years.

https://www.gov.uk/income-tax-rates

The UK uses progressive tax bands for income tax, meaning that the rate of tax increases as your income rises. For the 2025/26 tax year (England, Wales, Northern Ireland): Basic rate: 20% on income from £12,571 to £50,270. Higher rate: 40% on income from £50,271 to £125,140. Additional rate: 45% on income over £125,140. Income below £12,570 is covered by the Personal Allowance and is tax-free. Scotland has a different set of bands for non-savings and non-dividend income. These bands apply after deducting allowances and reliefs.

https://www.gov.uk/income-tax-rates

Not all income is taxable. Some sources are tax-free (ISAs, lottery winnings, Premium Bond prizes). Others have special allowances, such as the Personal Savings Allowance (£1,000 for basic rate, £500 for higher rate, none for additional rate) and the Dividend Allowance (£500 for 2025/26). Tax is applied to employment income, self-employment profits, rental income, dividends, and savings income above allowances. Foreign income may also be taxable depending on residence and double tax treaties.

https://www.gov.uk/apply-tax-free-interest-on-savings

The UK tax year runs from 6 April in one year to 5 April in the following year. For example, the 2025/26 tax year runs from 6 April 2025 to 5 April 2026. This unusual period dates back to historical calendar changes in the 18th century. All income, allowances, and reliefs are calculated based on this annual cycle. When filing Self Assessment returns, you report all income and gains received during that specific tax year.

https://www.gov.uk/self-assessment-tax-returns

Self Assessment is the system HMRC uses to collect income tax from people whose income is not fully taxed through PAYE. It applies to the self-employed, landlords, directors, high earners, and those with foreign or complex income. Taxpayers must register, complete an annual return declaring income and expenses, and pay any tax due. HMRC can issue penalties for late filing or errors, so accuracy and timeliness are important.

https://www.gov.uk/self-assessment-tax-returns

No. Most employees with income taxed under PAYE do not need to file. However, you must file if you are self-employed, a landlord, a company director, have untaxed savings/dividend income, or foreign income. You may also need to file if your income is over £100,000 or if HMRC sends you a notice to file. The obligation depends on income type and whether tax has already been paid.

https://www.gov.uk/self-assessment-tax-returns/who-must-send-a-tax-return

Deadlines depend on how you file. For the tax year ending 5 April, paper returns are due by 31 October and online returns by 31 January. The tax owed must also be paid by 31 January. Some taxpayers must make 'payments on account' in January and July, which are advance payments for the current year. Missing these deadlines leads to penalties and interest charges.

https://www.gov.uk/self-assessment-tax-returns/deadlines

A Unique Taxpayer Reference (UTR) is a 10-digit number issued by HMRC to identify you in the tax system. You will need a UTR when filing Self Assessment returns or contacting HMRC about your tax affairs. The UTR is issued automatically when you register for Self Assessment or as self-employed. You should keep this number safe as it will be required throughout your tax dealings.

https://www.gov.uk/find-lost-utr-number

A tax code is used by your employer or pension provider to decide how much income tax to deduct from your pay or pension. It reflects your Personal Allowance and any adjustments, such as unpaid tax or taxable benefits. For example, the code 1257L means you get the full £12,570 allowance. Checking your tax code regularly helps ensure you are not overpaying or underpaying tax.

https://www.gov.uk/tax-codes

PAYE (Pay As You Earn) is the system employers use to deduct income tax and National Insurance contributions directly from employee wages before payment. It ensures tax is collected in real-time and spread across the year. Employers pass these deductions to HMRC on behalf of employees.

https://www.gov.uk/paye

Tax codes can change for many reasons, such as a new job, changes in taxable benefits (e.g., company car), adjustments for unpaid tax from earlier years, or when you have multiple jobs or pensions. HMRC issues a notice of coding to explain changes. It’s important to check that these are correct, as errors may mean paying too much or too little tax.

https://www.gov.uk/tax-codes

Yes, bonuses are treated as part of your employment income and taxed through PAYE. They are subject to both income tax and National Insurance contributions in the same way as your regular salary. Large one-off bonuses may temporarily push you into a higher tax band for that pay period.

https://www.gov.uk/income-tax

Yes, most benefits-in-kind (perks provided by employers) are taxable. Examples include company cars, health insurance, accommodation, and loans. The value of the benefit is added to your taxable income and either adjusted in your tax code or reported via a P11D form. Employers must also pay Class 1A NI on most benefits.

https://www.gov.uk/expenses-and-benefits-a-to-z

Employees can claim tax relief on expenses incurred wholly, exclusively, and necessarily for work. This includes professional fees, tools, uniforms, travel between workplaces, and working-from-home allowances. Personal costs or general expenses (like commuting) are not claimable. Claims are made via HMRC’s online service, Self Assessment, or postal form P87.

https://www.gov.uk/tax-relief-for-employees

If you pay too much tax through PAYE, HMRC will usually issue a P800 tax calculation or refund automatically. If not, you can claim a refund online or by completing a Self Assessment return. Refunds may arise from incorrect tax codes, overpaid student loans, or allowable expense claims.

https://www.gov.uk/claim-tax-refund

The first £30,000 of redundancy pay is tax-free. Any amount above this is treated as employment income and taxed through PAYE. Other elements such as payment in lieu of notice or holiday pay are fully taxable as earnings. National Insurance is not due on statutory redundancy payments.

https://www.gov.uk/redundant-your-rights

Student loan repayments are deducted automatically under PAYE once your income exceeds the plan-specific threshold (Plan 1, 2, 4 or Postgraduate). The repayment rate is typically 9% (undergraduate) or 6% (postgraduate) of income above the threshold. Repayments reduce your take-home pay but do not affect your income tax liability directly.

https://www.gov.uk/repaying-your-student-loan/what-you-pay

National Insurance is a separate contribution from income tax. It funds state benefits such as the NHS, state pension, and unemployment support. Employees, employers, and the self-employed all contribute. The rates and thresholds differ depending on employment status. NI contributions also determine eligibility for certain benefits like the state pension.

https://www.gov.uk/national-insurance

Contributions to most pension schemes qualify for tax relief, meaning you do not pay tax on the portion of income you put into your pension (up to annual limits). This reduces your taxable income, making pensions an effective tax planning tool. However, pension income drawn in retirement is generally taxable.

https://www.gov.uk/tax-on-your-private-pension

To register as self-employed, you must inform HMRC by 5 October following the end of the tax year in which you started your self-employment. You can register online via HMRC’s website. Once registered, HMRC will issue a Unique Taxpayer Reference (UTR) and set up your Self Assessment account. You will need to keep records of your income and expenses and file a tax return each year. You may also need to pay Class 2 and Class 4 National Insurance contributions.

https://www.gov.uk/set-up-sole-trader

If you are self-employed, you can deduct business expenses that are 'wholly and exclusively' for your trade. Examples include office costs (rent, utilities, stationery), travel costs, staff wages, professional fees, advertising, and insurance. If you work from home, you may be able to claim a portion of household expenses such as heating, electricity, and internet. Expenses that are partly personal and partly business (e.g., a mobile phone) must be apportioned.

https://www.gov.uk/expenses-if-youre-self-employed

Class 2 National Insurance contributions are treated as having been paid by self-employed people with profits of £6,845 or more a year for 2025/26 (no actual payment required). They are a flat weekly rate (£3.50 per week in 2025/26 for voluntary payments). Paying Class 2 NI helps build entitlement to the State Pension and other benefits. If profits are below the threshold, you may choose to pay voluntarily to protect your benefit record.

https://www.gov.uk/self-employed-national-insurance-rates

Class 4 National Insurance contributions are also paid by self-employed people, but unlike Class 2, they are based on a percentage of profits. For 2025/26, the rates are 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270. These contributions are calculated and paid as part of your Self Assessment tax return.

https://www.gov.uk/self-employed-national-insurance-rates

You must register for VAT if your taxable turnover exceeds the VAT registration threshold (£90,000 for 2025/26). You can also register voluntarily if it benefits your business (for example, to reclaim VAT on expenses). Once registered, you must charge VAT on sales, submit VAT returns, and pay any VAT due to HMRC.

https://www.gov.uk/vat-registration

Making Tax Digital is a government initiative that requires businesses and individuals to keep digital records and submit tax information using approved software. Currently, MTD is mandatory for VAT-registered businesses above the threshold. It will eventually extend to income tax (from April 2026 for self-employed and landlords with income above £50,000).

https://www.gov.uk/government/publications/making-tax-digital/overview-of-making-tax-digital

Cash basis accounting allows self-employed businesses with turnover under £150,000 to record income and expenses only when money is received or paid, rather than when invoices are issued or bills received. This simplifies accounting for many small businesses but may not be suitable if you have high levels of stock, large borrowing costs, or complex business structures.

https://www.gov.uk/simpler-income-tax-cash-basis

Operating as self-employed means you are personally liable for business debts but have simpler reporting obligations. Profits are taxed as income. A limited company is a separate legal entity, offering limited liability protection. Profits may be more tax-efficiently extracted via dividends and salary, but the company has stricter compliance duties (annual accounts, corporation tax, Companies House filings). The best option depends on income level, risk profile, and growth plans.

https://www.gov.uk/set-up-business

Partnerships do not pay tax as an entity. Instead, each partner is taxed individually on their share of the profits through Self Assessment. The partnership must file a partnership return, but the tax liability lies with the individual partners.

https://www.gov.uk/set-up-business-partnership

Yes, you can employ family members in your business, provided the work is genuine and the pay is reasonable for the role. You must treat them like any other employee: issue contracts, pay at least minimum wage, and operate PAYE if required. HMRC may scrutinise arrangements to ensure they are not purely for tax avoidance.

https://www.gov.uk/employing-family

Yes. Rental income from property in the UK is taxable. You must declare it on your Self Assessment tax return. You can deduct allowable expenses such as letting agent fees, repairs, insurance, and council tax (if paid by landlord). Profits are taxed at your marginal income tax rate.

https://www.gov.uk/renting-out-a-property/paying-tax

Since April 2020, landlords can no longer deduct mortgage interest as a business expense. Instead, they receive a 20% tax credit on mortgage interest paid. This change affects higher-rate taxpayers most significantly, as they only receive relief at the basic rate.

https://www.gov.uk/guidance/changes-to-tax-relief-for-residential-landlords-how-its-worked-out-including-case-studies

If you rent out a furnished room in your main home, you can earn up to £7,500 per year tax-free under the Rent-a-Room scheme. If you share the income with someone else (e.g., a joint owner), the limit is halved. Above this limit, you must declare the income and pay tax on the excess.

https://www.gov.uk/rent-room-in-your-home

Capital Gains Tax is payable when you sell or dispose of certain assets (property, shares, valuable personal possessions) and make a profit. The tax is due on the gain (sale proceeds minus allowable costs). Rates vary depending on the asset and your income tax band. You may have to report and pay CGT within 60 days if disposing of UK residential property.

https://www.gov.uk/capital-gains-tax

Each individual has an annual tax-free CGT allowance (£3,000 for 2025/26). Gains above this are taxed at 10% (basic rate taxpayers) or 20% (higher/additional rate taxpayers) for most assets. For residential property, rates are 18% and 28% depending on your income tax band.

https://www.gov.uk/capital-gains-tax

Normally no. Your main residence qualifies for Private Residence Relief (PRR), meaning gains are exempt from CGT. However, if you let out part of the property, use it for business, or it is very large (over 5,000 square metres), partial CGT may apply.

https://www.gov.uk/tax-sell-home

Since April 2020, if you sell a UK residential property and CGT is due, you must report and pay it within 60 days of completion. This is separate from your Self Assessment tax return obligations.

https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

Yes, gifts of property (other than to a spouse or civil partner) are treated as disposals for CGT purposes, based on market value. This can trigger a capital gain even if no money changes hands. Separate inheritance tax rules may also apply if you die within seven years of making a gift.

https://www.gov.uk/capital-gains-tax/gifts

Yes, if you make a loss when selling a property or other chargeable asset, you can offset that loss against future capital gains. Losses must be reported to HMRC and can usually be carried forward indefinitely.

https://www.gov.uk/expenses-if-you-rent-out-property

Yes, non-resident landlords must pay tax on UK rental income. By default, letting agents or tenants may withhold basic rate tax, but you can apply to HMRC’s Non-Resident Landlord Scheme to receive rent gross and declare income via Self Assessment.

https://www.gov.uk/tax-uk-income-live-abroad/property-rent

Yes, but the Personal Savings Allowance may cover some or all of it: £1,000 for basic rate taxpayers, £500 for higher rate taxpayers, and £0 for additional rate taxpayers. Interest above this allowance is taxable and must be declared if not deducted automatically.

https://www.gov.uk/apply-tax-free-interest-on-savings

Yes, dividends above the annual allowance (£500 for 2025/26) are taxable. Rates are 8.75% (basic rate), 33.75% (higher rate), and 39.35% (additional rate). Dividends received within ISAs are tax-free.

https://www.gov.uk/tax-on-dividends

Yes, savings and investments held within an Individual Savings Account (ISA) are free from income tax and CGT. Each year, you can invest up to the annual ISA limit (£20,000 for 2025/26).

https://www.gov.uk/individual-savings-accounts

Inheritance Tax is charged on estates above the Nil Rate Band (£325,000). The standard rate is 40% on the value above this threshold. Transfers between spouses and civil partners are usually exempt. Additional allowances may apply, such as the Residence Nil Rate Band.

https://www.gov.uk/inheritance-tax

The Residence Nil Rate Band (RNRB) is an additional allowance (up to £175,000) when a main residence is passed to direct descendants. This can increase the total IHT-free allowance for an estate to as much as £500,000 per person.

https://www.gov.uk/inheritance-tax-residence-nil-rate-band

Most pensions are not counted as part of your estate for IHT purposes. This means pension funds can often be passed on free of IHT. Tax treatment may vary depending on the age of the pension holder at death and the type of pension plan.

https://www.gov.uk/tax-on-pensions

You can gift up to £3,000 per tax year free of IHT (annual exemption). Small gifts of up to £250 per person are also exempt. Larger gifts may become taxable if you die within seven years, subject to taper relief.

https://www.gov.uk/inheritance-tax/gifts

Income tax applies to earnings, self-employment profits, rental income, interest, and dividends. Capital Gains Tax applies to profits from the sale of assets such as property (other than your main home), shares, and valuable items. Both use separate allowances and tax rates.

https://www.gov.uk/capital-gains-tax

A double tax treaty is an agreement between the UK and another country to prevent the same income from being taxed twice. Treaties typically determine which country has taxing rights and allow tax credits or exemptions to avoid double taxation. This is particularly relevant for people with foreign income or those living abroad.

https://www.gov.uk/tax-foreign-income/tax-foreign-income

The UK uses the Statutory Residence Test (SRT) to determine if you are UK resident for tax purposes. It considers the number of days spent in the UK, connections (such as a home, work, or family), and ties to the country. Being a UK resident usually means you are taxed on worldwide income, while non-residents are taxed only on UK income.

https://www.gov.uk/tax-foreign-income/residence