Taxable income is the income that you must pay tax on in the UK. Not all types of income are taxable, some are non-taxable, tax-free or covered by income tax allowances and reliefs.
What Counts as Taxable Income?
HMRC sets out strict rules as to what they consider is taxable and non-taxable.
Here are some common types of Taxable Income:
- Self-employment profits
- Gross salary including commissions and bonus’
- Bank interest
- Investment income
- Rental income
- State Pension
- Carer’s Allowance
- Local authority payments to foster carers
- Jobseekers Allowance
- Statutory Sick Pay
- Cash in hand earnings
What Doesn’t Count as Non-Taxable Income?
Here are some examples of non-taxable income:
- Self-employment earnings of less than £1,000 covered by the trading allowance)
- Children tax credits
- Maternity allowance
- Universal credit
- Winter fuel payments
- Disability Living Allowance
You can check out the Citizens Advice Website for a full list of taxable and non-taxable income in the UK.
Do You Need to Declare Taxable Income?
Yes, you must declare your taxable income to HMRC. If you are employed and have no other forms of income, then your employer will do this for you on your behalf.
If you are self-employed or have received income that you haven’t paid tax on, then you’ll need to declare this to HMRC, most likely using a self-assessment tax return form online.
There is a common misconception that if you earn below the personal allowance you do not need to let HMRC know about your earnings.
This is incorrect.
Everyone must declare their taxable income whether they need to pay tax or not. This is so HMRC has an understanding of what you are earning and how.
How Much Tax Do You Pay on Taxable Income?
You pay income tax and possibly national insurance (depending on the type of taxable income you have earned) on your earnings above the personal allowance, currently £12,500.
Here are the current tax bands: