If you’re feeling unsure about your Income Tax obligations, it’s important to understand what you are required to pay, how you pay it and what to do if you haven’t paid enough or have paid too much.
What is Income Tax?
There are several things you will pay Income Tax on.
These include:
- Money from employment or self-employment
- State benefits
- Grants and support payments made to your business
- Pension payments
- Rental income
- Income from a trust
Most people in the UK get a tax-free Personal Allowance (currently £12,570). For most people, this is the amount of income you can have before you pay Income Tax.
However, those earning over £100,000 need to be aware that your Personal Allowance is reduced by £1 for every £2 that your adjusted net income is above £100,000.
If your income exceeds £125,140, this means your allowance is £0.
You will be taxed on your marginal rate:
- If you earn up to £12,570, you will pay 0 per cent income tax
- If you earn £12,571 to £50,270 you will pay the basic rate tax of 20 per cent
- If you earn £50,271 to £125,140 you will pay the higher rate tax of 40 per cent
- If you earn over £125,140 you will pay the additional rate tax of 45 per cent.
Under this system, if you are classified as a higher rate taxpayer, then you would pay Income Tax at a rate of 40 per cent on all earnings between £50,271 and £125,140.
For the lower part of your earnings (between 12,571 to £50,270) you’ll still pay the appropriate 20 per cent rate of tax and anything below that will benefit from the personal allowance depending on your entitlement to this.
How can you pay Income Tax?
Most people pay Income Tax through Pay As You Earn (PAYE).
This is when your employer or pension provider takes Income Tax and National Insurance payments before they pay your wages or pension.
You will have a personal tax code, which tells how much should be deducted.
However, there are many taxpayers, such as people who are self-employed, who must report their income via their Self-Assessment tax return and make tax payments directly to HM Revenue and Customs (HMRC).
From 2026, if you have business and/or property income of £50,000 or more you will need to follow the new Making Tax Digital rules for Income Tax Self-Assessment.
This will require you to complete quarterly tax statements digitally using HMRC-compliant software and complete an annual tax return.
If you need advice on Income Tax and your obligations, contact us today.
Our BLOG
How tax wrappers can mitigate the impact of rising Capital Gains Tax
TESTIMONIALS
The staff at CST are always very friendly and approachable.… Read more “Mr JD Dolling, SW Heating Equipment Ltd”
We have been with CST for more than seven years… Read more “Doris Francis, Engineering Services (Bridgend) Ltd”
Our business has been handled by CST for many, many… Read more “Mr & Mrs Rise”
I moved my business to Clay Shaw Thomas because I… Read more “Sandra Wilkinson of Sage Marketing”
The audit was well planned and executed efficiently, with minimum… Read more “GE Carpentry”
Privately and within the company Clay Shaw Thomas provides a… Read more “Seashore Enterprises”
I am very happy with the service from CST. An… Read more “Mr Atkinson “
The family connection with CST goes back many years and… Read more “Dr Jones”
CST are very efficient, courteous and proactive when dealing with… Read more “Mr CMG Adams”
I have been a client for over twenty years and… Read more “Mr J T Wall”
Always one step ahead of the game, CST have helped… Read more “Mr RT Evans”
CST Staff always give unbiased advice in a clear and… Read more “Mr L Branfield”
It has been a professional pleasure working with CST, they… Read more “Mr P Jenkins”
SUBSCRIBE to our list
If you would like to see full details of our data practices please visit our Privacy Policy and if you have any questions please email tellmemore@clayshawthomas.com.