Not all types of income are taxable. Find out what is classed as taxable income by HMRC in the UK and what doesn’t count in this guide.
Updated 2 November 2021
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Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.
1. What is Taxable Income?
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.
2. What Counts as Taxable Income?
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
3. What Doesn’t Count as Non-Taxable Income?
Here are some examples of income not considered taxable:
- Self-employment earnings of less than £1,000 covered by the trading income allowance
- Child tax credits
- Maternity allowance
- Universal credit
- Winter fuel allowance
- Disability living allowance
4. How to Declare Taxable Income?
Taxable income must be declared to HMRC. If you are employed and have no other forms of income, then your employer will do this for you on your behalf under the rules of PAYE – you’ll notice that your payslip contains a deduction for income tax made on your behalf. Your employer knows how much to deduct by using your tax code (the most common tax code is 1257L, previously 1250L).
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 so HMRC has an understanding of what you are earning and how.
Taxes are changing! From April 2024 sole traders will need to report their earnings and pay tax on a quarterly basis. This is known as Making Tax Digital, which you can read more about in this guide to help you get prepared.