What Counts as Taxable Income in the UK?

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
  • Jobseekers Allowance
  • Statutory Sick Pay
  • Cash in hand earnings
  • Dividends

What Doesn’t Count as Non-Taxable Income?

Here are some examples of non-taxable income:

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:

New Here? These are my most popular resources:

  • The Ultimate Bookkeeping Spreadsheet – Organise your money, track the numbers that matter and stay on top of your cash;
  • Freebies – templates, spreadsheets, calculators and cheat sheets. Here you’ll find all my freebies for the self-employed community, all in one place.
  • Sole Trader or Limited Company? – Download my free calculator to check which business structure would help you to pay less tax;
  • FREE Business Expenses Cheatsheet – Check what you can and can’t claim as an expense against your taxes.
  • 6 Core Elements of Self-Employment Taxes – Confused by taxes? Worried you’re missing something when it comes to tax allowances and reliefs? These easy to follow 6 mini-guides will have you on top of the tax side of things in no time at all.
Anita Forrest
About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - a UK small business finance blog where she shares help and advice with the self-employed community to make topics like registering a business, bookkeeping and taxes easy to understand.