It is important to be able to identify Taxable Income in the UK and Non Taxable. That way you know:
- What income you need to pay tax on;
- The income you need to declare to HMRC;
- The way in which you need to declare taxable income.
What is Taxable Income
Taxable income is the term given to earnings which UK individuals need to tell HMRC about.
HMRC sets out strict rules as to what they consider is taxable and non taxable. The rules can change, normally announced as part of the Autumn Budget.
Here are some common types of Taxable Income:
- Self employment profits
- Gross salary including commissions and bonus’
- Bank interest
- Rental income
- State Pension
- Carer’s Allowance
- Jobseekers Allowance
- Statutory Sick Pay
- Cash earnings
What is Non Taxable Income
Non taxable income are types of income and earnings that are tax free and HMRC do not need to be told about.
Here are some examples of Non Taxable Income:
- Self employment earnings of less than £1,000 (part of UK Trading Allowance)
- Child 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.
How to Declare Taxable Income to HMRC
How you declare your taxable income to HMRC depends on the what you have received and your employment status.
If you are in full time employment then taxable income like Statutory Sick Pay and Bonus’ will be declared on your behalf by your employer. The taxable income you receive will be shown on your payslip and the tax automatically deducted from the amount you are paid.
An employer is only responsible for declaring income that they pay to their employees (like gross salary or sick pay). This means if you receive income outside of your work then you are responsible for declaring this to HMRC, like rental income or dividends.
In general, taxable income needs to be declared to HMRC using a Self Assessment Tax Return Form. This means registering as self employed and filing a tax return by 31 January each year, along with any tax you need to pay.
Useful Reading: How Do I Register as Self Employed in the UK?
How Much Tax Do You Pay on Taxable Income
You pay income tax and possibly national insurance (depending on the type of income) on earnings above the personal allowance.
The Personal Allowance is the amount you can earn without paying any tax, £11,850 for 2018/2019.
The amount of income tax you pay is worked out by different bands.
The income tax bands for 2018/2019 are as follows:
|Band||Taxable income||Tax rate|
|Personal Allowance||Up to £11,850||0%|
|Basic rate||£11,851 to £46,350||20%|
|Higher rate||£46,351 to £150,000||40%|
|Additional rate||over £150,000||45%|
- If you are Self Employed you’ll need to also pay Class 2 and Class 4 National Insurance
- Dividends, Capital Gains Tax and Inheritance Tax are calculated using different bands and rates
Do You Need to Declare Taxable Income
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 wrong.
Everyone needs to let HMRC know about their taxable earnings, whether they need to pay tax or not. This is so HMRC have an understanding of what you are earning and how.
If you have received taxable income and you need to let HMRC know about it, then you can read about how to Register for Self Assessment here.