Income Tax is a tax you pay on your income. You do not have to pay tax on all types of income.
You pay tax on things like:
Most people in the UK get a Personal Allowance of tax-free income. This is the amount of income you can have before you pay tax.
The amount of tax you pay can also be reduced by tax reliefs if you qualify for them.
How you pay Income Tax
Most people pay Income Tax through PAYE. This is the system your employer or pension provider uses to take Income Tax and National Insurance contributions before they pay your wages or pension. Your tax code tells your employer how much to deduct.
Your tax code can take account of taxable state benefits, so if you owe tax on them (for example for the State Pension) it’s usually taken automatically from your other income.
If the State Pension is your only income, HM Revenue and Customs (HMRC) will write to you if you owe Income Tax. You may need to fill in a Self Assessment tax return.
If your financial affairs are more complex (for example you’re self-employed or have a high income) you may pay Income Tax and National Insurance through Self Assessment. You’ll need to fill in a tax return every year.
You must also fill in a Self Assessment tax return if you earned more than either:
• £1,000 from self-employment
• £2,500 from other untaxed income, for example from tips or renting out a property
State benefits that are taxable
The most common benefits that you pay Income Tax on are:
• Bereavement Allowance (previously Widow’s pension)
• Carer’s Allowance or (in Scotland only) Carer Support Payment
• contribution-based Employment and Support Allowance (ESA)
• Incapacity Benefit (from the 29th week you get it)
• Jobseeker’s Allowance (JSA)
• pensions paid by the Industrial Death Benefit scheme
• the State Pension
• Widowed Parent’s Allowance
• Tax-free state benefits
Add up all your taxable income, including taxable state benefits.
Work out your tax-free allowances.
Take your tax-free allowances away from your taxable income.
If there’s anything left, you’re a taxpayer.
If there’s nothing left, you should not be paying tax and may be due a refund.
Moxham Quinn is a unique firm that combines the expertise of accountancy and law. Our founders, one an accountant and the other a solicitor, have built a boutique practice with a strong presence in both United Kingdom and the United Arab Emirates.
Copyright © 2025 – Moxham Quinn. All Rights Reserved.