How do I pay income tax?

Working in Europe | Taxation/salaries | United Kingdom

The amount of income tax you have to pay depends on how much you earn and the types of income you currently receive. Calculating your taxable income accurately is important to ensure you are not accidentally over-taxed.

Personal Allowance

For the tax year 2015/2016 the first ₤10,500 that you earn is tax free, this is your personal allowance. Any income in excess of this £10,500 will be taxed.

The personal allowance is different for the visually impaired and the elderly.

What is a tax year?

The tax year runs from 6 April to 5 April the following year.

If you begin work in the middle of a tax year you will often only have to pay tax on income on a pro-rata basis from the start of your employment.

How do I pay income tax?

The way in which you pay income tax is dependent upon your employment status:

Employed

If you are employed, you will be automatically enrolled onto the PAYE (Pay as your earn) scheme, which will calculate and deduct your income tax payments from your salary. This means you do not have to fill out any annual tax return forms.

Self Employed

If you are self-employed, or have a substantial income from property or other means (for example foreign income), you will need to fill out a self-assessment tax form.

HM Revenue and Customs should be able to advice and determine whether you need to fill in a self assessment form.

What are National Insurance contributions?

You pay national insurance contributions (NIC) to build up your right to social security, benefits and a pension. NIC are automatically deducted from your wages or will be calculated from your self assessment tax return.

Some benefits are linked to National Insurance Contributions (NICs) paid by workers, for example Employment Support Allowance, Statutory Maternity Pay and Statutory Sick Pay, while other benefits are covered through public funds, such as housing allowance and child benefit.

External links

HMRC provides comprehensive information on income tax.

Find out more on personal allowances.

Learn more about National Insurance Contributions.