Income tax is levied on various types of income in the UK. Here’s a detailed breakdown of what is included and excluded, along with an explanation of tax codes.
What You Pay Tax On
You are required to pay tax on various types of income, including:
-
Employment Income: Earnings from your job.
-
Self-Employment Profits: Profits from self-employment activities.
-
State Benefits: Certain state benefits are taxable.
-
Grants and Support Payments: Financial support provided to you or your business.
-
Pensions: Most pensions, including state pensions and retirement annuities.
-
Rental Income: Income from renting out property.
-
Job Benefits: Perks or benefits received from your job.
-
Trust Income: Income derived from trusts.
-
Interest on Savings: Interest earned on savings over your savings allowance.
What You Do Not Pay Tax On
Certain types of income are exempt from tax, including:
-
Trading Allowance: The first £1,000 of income from self-employment.
-
Property Allowance: The first £1,000 of income from property rentals.
-
Tax-Exempt Accounts: Income from Individual Savings Accounts (ISAs) and National Savings Certificates.
-
Dividends: Dividends from company shares up to the dividend allowance.
-
Certain State Benefits: Specific state benefits that are non-taxable.
-
Lottery and Premium Bond Winnings: Winnings from premium bonds or the National Lottery.
Personal Allowance
Most individuals in the UK are entitled to a Personal Allowance of tax-free income. This is the amount of income you can earn before you start paying tax. The standard Personal Allowance is adjusted annually.
Tax Reliefs
The amount of tax you owe can be reduced if you qualify for various tax reliefs. These reliefs help lower your taxable income and can include reliefs for expenses related to your job, pension contributions, and charitable donations.
Understanding Tax Codes
Your tax code is a combination of letters and numbers used by your employer or pension provider to determine how much Income Tax to deduct from your income. HM Revenue and Customs (HMRC) provides the correct tax code to your employer or pension provider.
-
Example Tax Codes:
-
1257L: The most common tax code for the 2023/24 tax year, which means you are entitled to the standard tax-free Personal Allowance.
-
BR: Indicates that all your income from this job or pension is taxed at the basic rate.
-
D0: Indicates that all your income from this job or pension is taxed at the higher rate.
-
For more detailed information, including updates on personal allowances and tax codes, you can visit the .
