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 receive. Calculating your taxable income accurately is important to ensure you are not accidentally over-taxed. 

Personal Allowance

The first ₤12,500 that you earn is tax free, this is your personal allowance. Any income in excess of this £12,500 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 enrolled by your employer onto the PAYE (Pay As You Earn) scheme, which means your tax will be calculated on the basis of and deducted from your salary each month and will appear on your payslip. You will not have to fill out any annual tax return forms and calculate the tax yourself. There several different tax codes which depend on the annual salary amount and any other benefits you may receive.

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 provide advice and determine whether you need to fill in a self assessment form.

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 have to be calculated in 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.

You have to apply for a National Insurance Number (NIN) when in the UK if you are planning to work, claim benefits or apply for student loans.  

External links

HMRC provides comprehensive information on income tax.

Find out more about personal allowances.

Learn more about National Insurance Contributions.