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How much tax will you pay in the UK?
Anyone working legally in the UK has to pay tax on the income they earn here. Whether you have just arrived or are starting your first job, it helps to know which taxes apply and how the British system works.
The UK tax year does not match the calendar year: it runs from 6 April to 5 April the following year. Rules and thresholds change regularly, so check the current figures on GOV.UK before you start a job or sort out your tax.
Types of tax in the UK
UK taxes are split into direct and indirect taxes.
Direct taxes:
- Income Tax – tax on individuals' earnings,
- National Insurance (NI) – contributions towards the State Pension and certain benefits,
- Corporation Tax – tax on company profits,
- Capital Gains Tax (CGT) – tax on profits from selling assets,
- Inheritance Tax,
- Stamp Duty – tax on buying property and certain shares.
Indirect taxes:
- VAT,
- Excise Duty,
- Customs Duty.
As an employee, you will mostly deal with Income Tax and National Insurance contributions.
Income Tax rates
Income Tax in the UK is progressive. In England, Wales and Northern Ireland there are three main rates (Scotland sets its own Income Tax bands):
| Taxable income (GBP) | Tax rate |
|---|---|
| up to 12,570 | 0% (Personal Allowance) |
| 12,571 – 50,270 | 20% (basic rate) |
| 50,271 – 125,140 | 40% (higher rate) |
| over 125,140 | 45% (additional rate) |
Personal Allowance
The standard Personal Allowance is £12,570. You only pay Income Tax on earnings above this amount. Bear in mind that once your income goes over £100,000, the allowance is gradually reduced until it disappears completely.
National Insurance contributions
On top of Income Tax, employees pay National Insurance contributions. How much you pay depends on your earnings and whether you are employed or self-employed. For employees, NI is deducted automatically from your pay together with tax. To see how both deductions affect your wage, try our gross to net salary calculator.
VAT in the UK
The standard rate of VAT is 20%. There is also a reduced rate of 5% and a zero rate of 0% on selected goods and services, including most food and children's clothes.
How is tax collected?
Employees are usually taxed through PAYE (Pay As You Earn). Your employer deducts Income Tax and National Insurance from every payslip and passes it to HMRC.
After the end of the tax year you receive a P60, which summarises your pay and the tax you have paid. You normally only need to file a Self Assessment tax return if you have other income, for example from self-employment or renting out property, or if HMRC asks you to. If you think you have paid too much tax, you can claim a refund from HMRC.
Your tax code
Every employee has an individual tax code that tells your employer how much tax to take. The code reflects your Personal Allowance and other personal circumstances. The most common code is 1257L. If you are on an emergency code (for example W1, M1 or X) after starting a new job, check it with HMRC, as you may be paying too much. In standard employment you do not have to pay any tax yourself: your employer handles it all.
Double taxation
The UK has double taxation agreements with many countries. They decide where your income is taxed, so that you are not taxed twice on the same earnings. If you still have income or ties in your home country, check the agreement between the UK and that country, or ask HMRC or a tax adviser.
Running a business in the UK
The UK tax system is often seen as business-friendly. Corporation Tax rates vary depending on the level of profit, and the rules are relatively clear. Another advantage is the stability of the system and the straightforward way of dealing with HMRC, the UK tax authority.
Want to know what a job offer will pay after tax? Browse the latest jobs in the UK and check the figures with our salary guide.
