Income Tax.

Income Tax is a tax on your personal income.

How much Income Tax you pay is worked out on the income you receive in the tax year. The tax year runs from 6 April in one year to 5 April in the next.

This includes all your income. For example, if your annual income is made up of £18,000 from part-time wages and £6,000 from a pension, HMRC (the government department that collects tax) will work out how much tax you owe based on £24,000.

What counts as taxable income?

Taxable income includes:

• Earnings from employment or self-employment, including tips, ‘casual earnings’ from hobbies or ‘side hustles’ that you make over £1000 from
• Some State Benefits, including: Jobseeker’s Allowance, Carer’s Allowance, most Incapacity Benefit and contributions-based Education and Support Allowance
• Pensions, including: occupational pensions, personal pensions, annuities, and the State Pension. However, pension credit is not taxable.
• Income from owning or renting property
• Savings income, including: interest, dividends and other investment income (but not ISA accounts)
• Income from outside of the UK, including: a foreign pension and rent from a property outside of the UK

 

The Personal Allowance.

The Personal Allowance is how much you are allowed to earn before you have to start paying tax (often called your tax-free income). The government sets the amount each year, and it is usually announced in the annual government budget.  

For the tax year 2026/27, the basic Personal Allowance is £12,570. That means you can earn £12,570 a year before you start paying tax.

Income Tax rates (above the Personal Allowance) for 2026/27.

Once your income goes above the Personal Allowance, tax is charged at different rates depending on how much you earn.

England, Wales and Northern Ireland.

Band name	Band	Rate (England, Northern Ireland and Wales)
Basic Rate	£12,571 – £50,270	20%
Higher Rate	£50,271 – £125,140	40%
Additional Rate	over £125,140	45%

Scotland.

Band name	Band	Rate (Scotland)
Starter rate	£12,571 – £16,537	19%
Basic rate	£16,538 – £29,526	20%
Intermediate Rate	£29,527-£43,662	21%
Higher Rate	£43,663 – £75,000	42%
Advanced Rate	£75,001 – £125,140	45%
Top Rate	over £125,140	48%

Other Allowances.

There are other allowances that you may be able to claim tax relief on. These include:

• Blind Person’s Allowance
• Married Couple’s Allowance
• The Marriage Allowance
• Savings and investments

Find out more about Tax Allowances.

State benefits.

Income from State Benefits can be confusing. You pay tax on some benefits, but not on others.

For example, you pay tax on:

• Carer’s Allowance
• State Pension

But you don’t pay tax on:

• War pensions
• Disability Living Allowance

If you are unsure whether you should pay tax on your benefits, you can check with the Department for Work and Pensions (DWP), the Jobcentre, or find information about which benefits are taxed on the government website.

How do you pay tax?

There are two ways of paying tax, depending on where your income comes from: Pay As You Earn (PAYE) and Self Assessment. 

PAYE

With Pay As You Earn (PAYE) your employer or pension provider takes the tax from your wages before they pay you. They use a PAYE tax code to tell HMRC – and you – how much tax is being taken.

Find out more in our guide to PAYE, including tax codes, basic forms, over- or under-paying tax and what to do if you have a problem with your employer.

Self Assessment.

Some people need to submit a Self Assessment tax return. This is where you tell HMRC how much income you’ve had for the tax year. They then work out how much tax you owe and send you a tax bill.

Find out more in our guide to Self Assessment, including how to register, what you need to claim for and how to pay your tax bill.