How do I pay tax on my income?

The way in which income tax is paid will vary depending on the type of income involved, and whether you are employed or self-employed.

If you are an employee, your employer will deduct tax through PAYE (Pay As You Earn), but you will only need to pay tax if your earnings exceed your tax-free personal allowances. The tax deducted, along with the relevant National Insurance contributions (NICs) are paid over to HM Revenue and Customs. These deductions will be itemised on your payslip.

If you are working and also receiving a pension, tax will continue to be collected through PAYE. HMRC will advise both your employer and pension provider of the correct tax codes to operate so that the combined tax deducted covers the amount due on the total of your salary and pension. The tax will be paid over to HMRC in the usual way.

If you are self-employed, you will need to pay any tax owing direct to HMRC. To do this you will need to complete a Self Assessment tax return, giving details of your taxable profits and claiming any expenses and reliefs such as capital allowances you may be entitled to. HMRC will send you a tax calculation showing the amount due and the payment dates that apply. For more information on Self Assessment, see the Low Incomes Tax Reform Group website.

If you have income from savings, the bank or building society will deduct 20% tax from any interest they pay to you. If you are a non-taxpayer because your income is below the level of your tax-free allowances, you can apply for your interest to be paid without deduction of tax. More information on tax on savings can be found on the GOV.UK website.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.

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