Income Tax

UK income tax rates, allowances, benefits & payments

Income Tax is a form of tax that those receiving a wage above a certain level are obligated to pay. In the United Kingdom, only those receiving a ‘taxable income' defined by the payment level are liable for income tax. There are also many reliefs and allowances which are in place, meaning that even an obligatory amount may be reduced in some circumstances. This results in many individuals being in the circumstance where they are completely exempt with no tax to pay, and a large number of other cases where people pay a minimum of tax.

Income tax is the largest source of government revenue in the UK, followed by National Insurance contributions.

The definition of “taxable income” includes:

• wages from employment
• earnings through self-employment
• rental income
• income received through a trust
• income from shares (dividends)
• interest through many savings accounts
• the majority of pension incomes;
• State
• Company
• Personal pensions

Non-taxable income

Not all income is subject to tax. Many forms of income are entirely tax free, including:

• Working Tax Credit (WTC)
• certain benefits
• premium bond wins
• income through tax exempt accounts

Being exempt from tax, these sources of income are entirely free from consideration within calculated tax status. This is an attempt to ensure that the burden of tax is not placed unfairly on those who are poorly positioned to pay.