Income Tax

Income tax is paid on the following earnings:

  • Employment salary
  • Self-employment profits
  • Some state benefits
  • State, company and personal pensions
  • Rental income
  • Work benefits
  • Trust fund income

Income tax in NOT payable on:

  • Interest on savings
  • Tax exempt accounts income
  • First £5,000 on company share dividends
  • Some state benefits
  • Premium bonds
  • National Lottery wins
  • Rent received from a lodger in case if the rent is below the “rent a room” limit

How is income tax paid?

Pay as you earn (PAYE) is the system used by employers and pension providers to deduct income tax and national insurance contributions from the salaries. The tax codes provide employers with the information on how much should be deducted.

Self-Assessment Tax Returns In case if you are self-employed or have a high-income, Income Tax and National Insurance Contributions can be paid through self-assessment. A tax return form must be filled out yearly in this case.

Interest on savings and investments is no longer automatically taxed, meaning that a tax return will also need to be filed if the untaxed income is above £2,500 or if tax is not paid through salaries and pensions.

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