Tax

Most people in the UK pay tax on their income above a tax-free allowance of £12,570¹. Above that, the main rates of Income Tax are 20%, 40% and 45% in England, Wales and Northern Ireland, while Scotland has its own rates and bands, set by the Scottish Government but collected by HMRC². Employees and most pensioners have tax taken automatically through PAYE; people with income from self-employment, renting or investments usually report it themselves through Self Assessment, filing online by 31 January after the tax year ends⁴.

This guide walks through the whole system in the order you meet it: what income is taxable and what is not, how the allowance and bands work, how tax is collected, what happens if you file late or cannot pay, and where to get free help. Where Scotland, Wales and Northern Ireland differ from England, it says so.

What counts as taxable income, and what is tax-free

Income Tax applies to a wide range of money coming in, not just wages. Taxable income includes money you earn from employment, profits from self-employed work including services sold through websites or apps, some state benefits, most pensions including the State Pension, company and personal pensions and retirement annuities, rental income unless you are a live-in landlord within the Rent a Room Scheme limit, benefits from your job, income from a trust, and interest on savings above your savings allowance⁷.

A good deal of income is tax-free, and knowing what falls outside the net matters just as much as knowing the rates. You do not pay tax on the first £1,000 of income from self-employment (the trading allowance), the first £1,000 of income from property you rent unless you use the Rent a Room Scheme, income from tax-exempt accounts like ISAs and National Savings Certificates, dividends from company shares within your dividends allowance, premium bond or National Lottery wins, and rent from a lodger below the Rent a Room Scheme limit⁷.

ISAs are the clearest example: any returns you earn in an ISA are free from UK Income Tax and Capital Gains Tax⁸. The phrase "tax free" on savings products has a specific meaning, that the interest or prizes are exempt from UK Income Tax and Capital Gains Tax⁹. If you are in a Share Incentive Plan at work, you can buy partnership shares worth up to £1,800 per tax year¹⁰.

The amount of tax you pay can also be reduced by tax reliefs if you qualify for them, which range from pension contributions to Gift Aid on donations⁷. The dedicated guides on dividend tax, how savings interest is taxed, rental income and Rent a Room relief cover each of these in detail.

Personal Allowance: £12,570 for most people

The Personal Allowance is the amount of income most people can receive each year before paying any Income Tax. For the 2026/27 tax year it is £12,570¹, the same figure confirmed by the UK Government in the 2025 Autumn Statement and used across the whole of the UK, including for Scottish taxpayers¹¹ and Welsh taxpayers¹². Income within the allowance is taxed at 0%: in Scotland, taxable income up to £12,570 falls in the Personal Allowance band at 0%².

Because the allowance is annual, it resets each tax year, which runs from 6 April one year to 5 April the next. If your income is below £12,570 you generally pay no Income Tax at all on it. If you are married or in a civil partnership and one of you does not use all of the allowance, part of it can be transferred: see Marriage Allowance for how that works, and the comparison of Marriage Allowance and Married Couple's Allowance if you are unsure which applies.

Some people get a larger allowance. Blind Person's Allowance adds to the standard amount for those who qualify: the details are on the Blind Person's Allowance page.

How the Personal Allowance shrinks above £100,000

The Personal Allowance is withdrawn once income passes £100,000. It reduces by £1 for every £2 of income above the £100,000 limit, irrespective of date of birth⁵. The threshold is measured after certain allowable deductions such as pension and Gift Aid contributions, so paying into a pension can keep more of the allowance intact¹³. The same taper applies across the UK: those earning more than £100,000 see their Personal Allowance reduced by £1 for every £2 earned over £100,000, in Scotland as elsewhere¹¹.

The practical effect is a steep marginal rate in the band between £100,000 and £125,140, because each extra £2 of income both is taxed and takes away £1 of allowance. Taxpayers earning more than £125,140 do not benefit from the Personal Allowance at all². The full workings, including how pension contributions soften the effect, are on the Personal Allowance taper page.

Income Tax rates and bands: 20%, 40% and 45%

In England, Wales and Northern Ireland, Income Tax above the Personal Allowance is charged in three bands. For the 2026/27 tax year the basic rate of 20% applies to income from £12,571 to £50,270, the higher rate of 40% applies to income from £50,271 to £125,140, and the additional rate of 45% applies to income above £125,140¹. The same 20%, 40% and 45% main rates for non-savings, non-dividend income were confirmed in the Autumn Budget 2024¹⁴, and the same band boundaries appear in HMRC's guidance for people starting work¹⁵.

The bands are often expressed differently in official documents. The Budget annex sets them out as amounts of taxable income, that is income above the Personal Allowance: basic rate on £1 to £37,700, higher rate on £37,701 to £125,140, and additional rate on income over £125,140⁵. Both presentations describe the same system: £37,700 is simply the width of the basic rate band (£50,270 minus £12,570).

Scotland sets its own rates and bands, and they differ from the rest of the UK. For 2026 to 2027, with a standard Personal Allowance, the Scottish bands include the Personal Allowance band at 0% up to £12,570, a basic rate of 20% on taxable income from £16,538 to £29,526, and an advanced rate of 45% on taxable income from £75,001 to £125,140². The Scottish Government confirmed the advanced rate at 45% for 2026-27¹¹. Scotland has more bands than the rest of the UK, so income moves through the rates in smaller steps.

Because the rates are marginal, people pay far less on average than the headline rate of their band suggests. HMRC's statistics for the 2023 to 2024 tax year show basic rate taxpayers paid an average of 10% of their income in Income Tax, higher rate taxpayers an average of 21%, and additional rate taxpayers an average of 37.7%¹⁶. The full explanation of how a bill is built up band by band is on the Income tax page, and National Insurance, a separate tax with its own classes and rates, is covered alongside it.

Tax on dividends, savings and pensions

Dividends from company shares are taxed at their own rates, which are lower than the main rates. The dividend ordinary rate is 8.75% for the 2025 to 2026 tax year and rises to 10.75% for 2026 to 2027; the dividend upper rate is 33.75% for 2025 to 2026 and 35.75% for 2026 to 2027⁵. Dividends within your dividends allowance are tax-free⁷, and the order in which savings and dividend income sit in your bands is explained on the savings and dividend order page.

Savings interest above your savings allowance is taxable income⁷, and the allowance itself depends on your band: additional rate taxpayers get a Personal Savings Allowance of £0, so all of their taxable savings interest is charged¹³. How the savings allowance works at each band is on the savings income page.

Pensions are taxed on an "exempt, exempt, taxed" (EET) model for income tax: contributions and investment growth are largely exempt, and income drawn in retirement is taxed¹⁷. You usually get tax relief on money you pay into a pension¹⁸. Scottish taxpayers can claim extra relief on their Self Assessment tax return on GOV.UK or through their tax code for the money they put into a private pension¹⁹. The rules for pension income in retirement, including the State Pension, are on the pensions and State Pension income pages.

PAYE, tax codes and P800 letters

Most people never send HMRC a bill: tax on wages and many pensions is collected automatically under PAYE, using a tax code that tells the employer or pension provider how much tax-free allowance to apply. How the code is worked out, and what the letters and numbers in it mean, is explained on the tax codes and PAYE pages. You can check your code online on GOV.UK or on the HMRC app, and let HMRC know if it still does not look right²⁰.

One common situation is a second job. You can only use your Personal Allowance for one job, so HMRC gives it to your main one; the second job is usually taxed on a BR code, which means no Personal Allowance is applied and everything is taxed at the basic rate²⁰. The detail is on the two jobs and two tax codes and BR and 0T codes pages.

At the end of the tax year, on 5 April, HMRC compares what you paid with what you owed. If it finds a difference, it sends a P800 tax calculation letter²¹. P800s are usually sent out between June and March after the tax year ends²¹. The letter shows your taxable income, the tax you have already paid, the amount of any tax you owe, and the amount of any tax you have overpaid²¹. If your P800 shows you owe tax, HMRC will usually change your tax code for the following year so the money is collected that way: one HMRC example has a taxpayer owing £300, collected as an extra £25 each month through a changed code²¹. If you have paid too much or too little tax by the end of the tax year, HMRC will send either a P800 or a Simple Assessment letter²².

Do I need to file a Self Assessment tax return?

Self Assessment is mainly for self-employed people and people who get money from things other than their job, like investments or renting out a property¹⁵. You have to send a Self Assessment tax return if you have other UK income, for example a pension, savings interest or income from renting out a property²³. Self-employed students need to fill in a return each tax year, declaring their income and expenses²⁴. If you come to live, work or study in the UK, you pay tax on your income, which includes wages, benefits, money you make from working for yourself and money from renting out a property²³.

People living abroad usually have to send a return if they rent out property in the UK, have taxable savings interest from UK banks or building societies, have a pension outside the UK and were UK resident in one of the five previous tax years, or have any other untaxed UK income²⁵. Non-residents can file by filling in a Self Assessment return and an SA109 form and sending it by post, by using commercial Self Assessment software that supports SA109 reporting, or by getting a tax professional to report their UK income for them²⁵. The rules on residence are on the moving abroad or to the UK page.

Not everyone with untaxed income needs a full return. Simple Assessment is not the same as making a Self Assessment tax return: HMRC works out the tax and sends a letter, and you simply check and pay it²⁶. See Simple Assessment for how it differs. If you do need to file, the deadline for online tax returns is 31 January, which is 31 January 2027 for the 2025/26 tax year⁴. You can call HMRC on 0300 200 3610 to request blank tax return forms or guidance notes²⁷. When and how to register is on the registering for Self Assessment page, and telling HMRC you no longer need to file is on stopping Self Assessment.

You need to keep records if you have to send HMRC a Self Assessment tax return. You will need your records to fill in your return correctly, and if HMRC checks it, they may ask for the documents²⁸. What to keep and for how long is on the keeping your PAYE and tax records guidance and the record-keeping rules on GOV.UK²⁸.

Making Tax Digital: quarterly updates for the self-employed and landlords

Making Tax Digital for Income Tax changes how the self-employed and landlords report. Under it, you must keep electronic records and send summaries of your income and spending to HMRC every three months²⁷. The quarterly updates follow a set timetable: the update for period 1, covering 6 April to 5 July (or 1 April to 30 June if using calendar periods), is due by the following 7 August, and the update for period 3, covering 6 April to 5 January (or 1 April to 31 December), is due by the following 7 February⁶.

Who has to join depends on income. From April 2028, people with qualifying income from self-employment or property over £20,000 must use Making Tax Digital for Income Tax⁶. The threshold is based on the 2026/27 tax return, so anyone whose gross income is above £20,000 that year needs to be ready for the 2028 start⁶. The full timetable, and who is exempt, is on the Making Tax Digital and digital exclusion exemption pages, with penalties on the MTD penalty points page.

Late filing penalties: £10 a day after three months

Missing the 31 January deadline costs money, and the penalties build in stages. Once a return is at least three months late, the penalty is £10 for each day, up to a maximum of £900. At six months late, it is £300 or 5% of the income tax due, whichever is higher. At twelve months late, it is £300 or 5% of the income tax due, whichever is higher, and in some serious cases 100% of the tax due instead⁶. These are the penalties for years before Making Tax Digital applies; once quarterly updates are in force, a points-based system takes over, covered on the MTD penalties page.

Penalties can be challenged if you have a reasonable excuse, such as serious illness or the death of a close relative shortly before the deadline: see reasonable excuse. The full penalty schedule, including what happens when no tax is due at all, is on the late filing penalties page.

Mistakes, corrections and HMRC enquiries

If you make a mistake on a return, it can be corrected, but the longer an error stands the further HMRC can reach back. If HMRC thinks the right amount of income has not been reported, it can ask for your records for the previous four years. If it thinks an error was due to a lack of reasonable care, it can go back six years. In cases of suspected fraud, or if you have never submitted a tax return, it can go back 20 years⁴. This is why keeping records matters: you will need them to fill in your return correctly, and HMRC may ask for the documents if it checks your return²⁸. The detail is on the undeclared income page.

If you disagree with a tax decision or penalty, there are routes to challenge it, from asking HMRC to look again to taking a case to the tax tribunal: the options are compared on the HMRC internal review or tax tribunal page. Complaints about how HMRC has handled things, as opposed to the tax itself, follow a separate route described on how to complain about HMRC.

If you cannot pay your tax bill: payment plans and enforcement

If you owe money to HMRC for tax or penalties, there is an online tool to help you find the right guidance and support²⁹. The guidance covers checking whether a letter you have received from HMRC is genuine, getting extra support due to your health or personal circumstances, making a payment, disagreeing with a tax decision or penalty, getting help signing in to HMRC online services, what help is available if you cannot pay your tax on time, and what will happen if you do not pay your tax bill²⁹.

If you want to speak to someone about your debts, you can get free, confidential and independent advice from a debt adviser²⁹. That conversation is worth having before the bill gets old, because the consequences of not paying are serious: if you do not pay your tax bill, HMRC will take enforcement action to get the money you owe³⁰. The wider options for problem debts, including where free advice sits, are on the debt page, and Business Debt Line publishes guidance on dealing with Income Tax debt⁶.

Claiming back tax you have overpaid

Overpaid tax comes back to you, and claiming it yourself is free. You can check and claim a refund online on GOV.UK, on the HMRC app, or by asking HMRC to send you a cheque; HMRC may also reduce the tax collected from your future wages instead²⁰. The full process, including time limits, is on the tax refunds page.

A few situations have their own routes. If you have paid too much under Simple Assessment, you will need to contact HMRC for a refund²⁶. Foreign students working in the UK may be entitled to reclaim tax they have paid when they leave, by filling in a form P85 and sending it to their Tax Office²⁴. People who live abroad can send form R43 to HMRC, or claim the refund in their Self Assessment tax return if they are already doing one²⁵. If you stop work or leave to study, the routes are on the refund after stopping work page.

Who does what in the UK tax system

The tax an individual pays is run by a small number of bodies, and knowing which one is responsible saves a lot of wasted phone calls. HM Revenue and Customs collects Income Tax, National Insurance and the other personal taxes, and publishes accredited official statistics on the tax and NICs receipts it collects for the UK³¹. Responsibility for Income Tax in Scotland is split between the Scottish Government, which sets the rates and bands, and the UK Government, and it is collected and managed by HMRC³. So a Scottish taxpayer deals with HMRC even though the Scottish Government decides the rates. Welsh Income Tax is similarly reported on in official outturn statistics, with Welsh taxpayers receiving the same £12,570 Personal Allowance¹².

The system also contains a large number of reliefs that reduce what individuals pay. HMRC has costed 380 tax reliefs and investigated a further 189; of the 380 costed, 298 are non-structural, including disclosive estimates, and 82 are structural³². Council Tax, by contrast, is not HMRC's business: it is a local tax handled by your local council.

Extra support and getting help with HMRC

HMRC's guidance for people who owe money covers getting extra support due to your health or personal circumstances, and that support is not limited to debt cases²⁹. If a letter arrives that looks odd, the guidance covers checking whether a letter you have received from HMRC is genuine²⁹, and the warning signs of fake HMRC calls, texts and emails are on the HMRC scams page.

Free and independent help exists outside government. TaxAid publishes guidance on preparing for Self Assessment⁴, and debt advisers give free, confidential and independent advice to people who owe HMRC money²⁹. HMRC also runs the 'Don't get caught out' campaign, which helps people understand the risks of tax avoidance schemes³⁰; the loan charge and disguised remuneration schemes that caught many contractors are covered on the loan charge page. For everyday tasks, the HMRC app and online account page explains what you can check and do yourself.