What is Tax Liability?

Your tax liability is the total amount of tax you owe to HMRC for that tax year after all available tax reliefs and allowances have been deducted from your taxable income for that tax year. Tax deductions, reliefs and allowances can reduce your tax liability considerably. You should ensure that you claim all of yours if you want to avoid overpaying tax.

Your tax liability is determined by how much income you receive, which sources it comes from and whether you work for yourself or not. If you are a sole trader, your tax liability will be different to the tax liability of a limited company that you run. Some people with no income or very low income have no tax liability. 

The amount of Income Tax you pay in each tax year depends on how much of your income is above your Personal Allowance and how much of your income falls within each Income Tax Band.

As an employee, you may be able to reduce your tax liability by putting more of your income towards your retirement, donating to charities, claiming tax credits and claiming all of the tax allowances and reliefs for which you are eligible. To reduce their tax liability, businesses and individuals often pay for professional tax-planning advice. Reliably calculating your tax liability can be challenging, which is why it can be a good idea to seek the services of a professional tax or financial adviser.  

By law you must pay the tax you owe on your taxable income. The deadlines for paying your tax bill via Self Assessment are usually 31 January (for tax you owe for the previous tax year, which is known as a balancing payment) and your first payment on account (ie a payment towards your next tax bill), then 31 July for your second payment on account.