Income TaxWhat is Income Tax, and how is it paid?

Income tax is only charged if you are earning money, and only when you have earned above a certain amount in a year. You have to pay income tax regardless of whether you work for yourself (and are registered as self-employed) or you work for someone else. If you get a bonus or other benefits from your place of work (such as a company car or medical insurance), these may also be taxable, and your employer will be able to advise you of this. In addition, there are other forms of income that are taxable, such as income from pensions, savings (but not Individual Savings Accounts - ISAs - or Personal Equity Plans - PEPs), investments (dividends from owning shares) and income from renting out property if you earn more than £4,250 a year from this. Some State benefits, including Jobseeker's Allowance and Carer's Allowance, are taxable. More info

Most UK residents have what is known as a 'Personal Allowance', which is the amount you can earn tax-free. For the 2009-10 tax year, the basic Personal Allowance is £6,475, and you then have to pay income tax on everything that you earn above that. If you are aged 65 or above, or if you are blind, you may be eligible for a higher Personal Allowance. There are some forms of income on which you do not have to pay tax. If you have any savings in Premium Bonds and they win, you do not have to pay tax on your winnings. Tax credits, such as Working Tax Credit and Child Tax Credit are exempt from tax, and there are a number of State benefits, including Housing Benefit and Disability Living Allowance where you do not have to pay tax. If you are unsure about whether you are claiming taxable benefits, you can look at HMRC's list of taxable social security benefits . Less