What is Income Tax?
Income Tax is a tax you pay on certain types of income, such as:
- Employment income
- Self-employment profits
- Rental income
- Some state benefits
- Employment benefits
- Interest on savings
You don’t pay tax on things like:
- Earnings below the personal allowance
- Your first £1,000 of self-employment income (trading allowance)
- Your first £2,000 of dividend income (dividend allowance)
- Your first £1,000 of interest on savings
- Premium bonds or lottery winnings
- Income from a lodger under £7,500 (rent-a-room scheme)
How You Pay Income Tax
PAYE “Pay as You Earn”
If you are employed, your employer will deduct your tax every time they pay you. You’ll be paid after tax and your employer is responsible for paying your tax to HMRC.
Self-Assessment Tax Return
If you are self-employed or have received other types of untaxed income, then you’ll need to submit a self-assessment tax return form declaring your income and then pay your tax.