What is Income Tax and when do you start paying it?

Our mission is to make tax simple and save you stacks of cash! Income tax has been confusing UK taxpayers for years resulting in taxation panic and worry, but GoSimpleTax is here to make things easy.

Today, we’re going back to basics; we’re going to tell you what income tax is and what you need to pay tax on.

What is Income Tax?

Income tax is a tax levied directly on personal income. To put it simply, income tax is the tax on your earnings. Once your earnings go above your personal allowance you must pay tax on the following sources of income:

• Income from employment
• Income from pensions
• Interest on savings
• Rental income
• Employment benefits
• Income from a trust

Income tax is a sad fact of life and if you receive income from any of the above sources you may need to file a Self Assessment tax return. First off, find out for sure if you need to file a tax return by asking the GoSimpleTax wizard. It’s free, easy to use and takes less than a minute.

How Do I Pay Income Tax?

There are two ways you can pay UK income tax:

• PAYE (pay as you earn): income tax deducted from your salaried pay
• Self-assessment: UK taxpayers who are self-employed or have any of the income sources above, must file a self-assessment tax return each year.

How Much is Income Tax?

Most people in the UK get a personal allowance of tax-free income. For the 2022/23 tax year, you’re entitled to £12,570, even if you fall into one of the below income tax bands.

Income tax rates vary, and how much you pay depends on which of the income tax brackets you fall into:

Basic rate: tax is payable at the basic rate of 20% on taxable income up to £50,270.

Higher rate: If your taxable income falls between £50,271 but is less than £150,000, tax is payable at the higher rate of 40%

Additional rate: If you have more than £150,000 you will have to pay an additional rate of 45%

Non-Taxable Income

On a brighter note, you will be relieved to hear that not all income is taxable. You don’t need to pay tax on:

• Income from tax-exempt accounts, such as ISA’s
• Working tax credit
• Premium bonds
• National savings certificates

With GoSimpleTax, you need not worry about income tax thresholds; we make it insanely easy to file your tax return.

Still unsure whether you need to file a self-assessment tax return, simply ask the GoSimpleTax wizard and you’ll get an instant answer.

Access GoSimpleTax and discover a simple way of filing your return (HMRC approved), know what expenses will help you lower your tax bill and keep all your records online, safe & sound. Ready to file with one click! Free means free. No hidden costs.

View our Guide to Self Assessment Tax Returns

Blog content is for information purposes and over time may become outdated, although we do strive to keep it current. It's written to help you understand your Tax's and is not to be relied upon as professional accounting, tax and legal advice due to differences in everyone's circumstances. For additional help please contact our support team or HMRC.