How to file income taxes in the UK in 2023

It can be challenging to comprehend income taxes in the UK. Read about the system’s operation, who is responsible for paying UK income tax, and the rates and due dates for 2023.

Most people who work or earn money in the UK are required to pay UK income tax. In the UK, there are around 34 million tax payers. However, how income tax is collected is governed by various UK tax laws. Scotland’s and Wales tax brackets differ marginally from those in England, and Northern Ireland. Both UK tax citizens and non-residents must follow distinct laws. In particular, UK residents are required to pay income taxes on their worldwide income, while non-residents are only required to pay taxes on their UK-based income.

UK income tax laws

The UK’s system of income tax

Your contribution to the UK government’s expenditures on things like transportation, the NHS, and the British educational system is made through income tax. The amount of UK income tax you must pay is based on your income.

Income tax is the responsibility of HM Revenue and Customs in the UK (HMRC). In its capacity as the UK’s tax, payment, and customs body, it levies taxes on both domestically produced income and the global income of any resident.

Income can come from a variety of sources, such as employment and perks from your job, business profits, some state benefits, pensions, rent, interest from savings, dividends from stocks or bonds, and so forth.

Depending on the sort of income and whether you are employed, self-employed, or unemployed, income taxes in the UK are collected in a variety of methods. The following are some of the various methods used to collect income tax:

Salary workers’ Pay-as-You-Earn (PAYE)

Self-assessment UK tax return – typically for freelancers or independent contractors

Deductions at source are when taxes are deducted from some bonds or interest before being paid.

Occasionally, one-time payments

In the UK, who pays income taxes?

Anyone regarded as a resident of the UK is required to pay income tax there. Rent and investment income are two examples of income that is automatically subject to UK income tax for non-residents.

In the UK, who is excluded from paying income taxes?

The answer is no one is excluded from paying income tax however some incomes sources  are exempt or there are allowances to reduce the income tax burden.

In the UK, the majority of people receive a personal allowance of taxable income. You can earn up to this amount before paying taxes. Additionally, if you are eligible for tax reliefs, you may be able to lower the amount of tax you pay.

Pensioners and those with visual impairments are eligible for specific relief programmes. The Blind Person’s Allowance, which is an additional £2,520 for the tax year 2021/22 and £2,600 in 2022/23, is added to your personal allowance.

UK tax breaks for particular categories

After you reach State Pension age, senior citizens do not have to pay National Insurance. When you attain State Pension age, you stop making Class 4 contributions at the conclusion of the tax year. However, you will be subject to UK income tax if the sum of your state and private pensions exceeds the personal allowance.

Interestingly though employers still have to pay national insurance on top of retirees income past retirement age.

Couples who are married or in a civil partnership might also be able to benefit. You can save up to £252 in tax annually by using the Marriage Allowance to transfer £1,260 of your Personal Allowance to your spouse, civil partner, or married partner. The lower earner often needs to make less than their personal allowance in order for the couple to gain.

Finally, a large number of UK state benefits, such as the bereavement allowance (formerly known as the widow’s pension), carer’s allowance, and others,are taxable eligible for a complete UK income tax deduction. The government’s website includes a comprehensive list of benefits that are also applicable tax exempt.

Tax-free state benefits

The most common state benefits you do not have to pay Income Tax on are:

• Attendance Allowance
• Bereavement support payment
• Child Benefit (income-based – use the Child Benefit tax calculator to see if you’ll have to pay tax)
• Child Tax Credit
• Disability Living Allowance (DLA)
• free TV licence for over-75s
• Guardian’s Allowance
• Housing Benefit
• Income Support – though you may have to pay tax on Income Support if you’re involved in a strike
• income-related Employment and Support Allowance (ESA)
• Industrial Injuries Benefit
• lump-sum bereavement payments
• Maternity Allowance
• Pension Credit
• Personal Independence Payment (PIP)
• Severe Disablement Allowance
• Universal Credit
• War Widow’s Pension
• Winter Fuel Payments and Christmas Bonus
• Working Tax Credit

The most common benefits that you pay Income Tax on are:

• Bereavement Allowance (previously Widow’s pension)
• Carer’s Allowance
• contribution-based Employment and Support Allowance (ESA)
• Incapacity Benefit (from the 29th week you get it)
• Jobseeker’s Allowance (JSA)
• pensions paid by the Industrial Death Benefit scheme
• the State Pension
• Widowed Parent’s Allowance

Earnings in the UK subject to income taxes

Any wages, earnings from employment, and profits from self-employment are all considered to be taxable income in the UK. Net rental income, wages, the majority of pension payments, and some state benefits are also subject to UK income tax (under certain restrictions). The income you receive from a trust and a lot of employment-related benefits are both taxed. The UK’s income tax system also includes some interest earned on savings and investment income.

Income and wage taxes in the UK

The personal allowance, which most UK citizens and some non-residents are entitled to, is the only amount of income tax that anyone working in the UK or receiving income from British sources is exempt from paying income tax.

The sources listed below are subject to income taxes in the UK:

• money you receive from your UK paycheck
• Profits earned by self-employed individuals in the UK, including those from services sold through websites or apps
• Several state perks
• most British pensions, including company, personal, and retirement annuities, as well as state pensions
• Rent (unless you’re a live-in landlord and receive less than the maximum allowed for rent a room)
• benefits of your employment
• the proceeds of a trust
• Interest on excess funds exceeding your savings cap
• Employment benefit taxes

You will be required to pay UK income tax on benefits received from your employer in addition to being taxed on your job earnings. A corporate car, gas, a low-interest loan, medical insurance premiums, cost-of-living and housing allowances, tax refunds from the home country, school tuition, expatriation premiums for working in the UK, as well as any benefits-in-kind, are examples of such advantages. Any tips you receive for your work may are also be subject to taxation. Some employee perks, like childcare, may not be subject to taxes.

Employeer payments to a foreign pension plan may be deductible and the employer’s contributions are may not be taxed under certain circumstances, although these are subject to an annual allowance cap.

Employer contributions subject to the annual allowance are not subject to income tax.

Taxes on investments and savings

The UK seeks to motivate people to put their own money in savings institutions. As a result, you might be eligible to receive up to £5,000 in interest without paying tax on it. However, your starting rate for saving will be lower the more money you make from other sources (like salary or a pension).

You are not qualified to get the starting rate for savings if your other income is £17,570 or more. Your beginning rate is only £$5,000 if your other income is less than £17,570. Your beginning rate for savings is reduced by £1 for every £1 of additional income beyond your personal allowance.

Additionally, depending on your income tax bracket, the Personal Savings Allowance allows you to receive interest payments totaling up to £1,000 tax-free. This is valid for a variety of accounts, including those in banks and building societies, savings and credit unions, unit and investment trusts, peer-to-peer lending, and government or corporate bonds. It also applies to accounts in these institutions. Add all of the interest you’ve received to your other income to determine your tax bracket.

Amounts received from tax-free savings accounts

The UK allows people to save for retirement through a number of investment programmes, including the Individual Savings Account, which is one of them (ISA). Individuals may invest up to £20,000 for the tax years 2021–2022 and 2022–2023—but only if they are citizens of the UK. You can keep your ISA open and continue to earn interest on the money invested even if your residency status changes, but you are unable to make additional investments.

Dividends

Individuals are exempt from paying income tax in the UK on up to £2,000 of company dividends, according to HMRC. Depending on the individual’s tax bracket, dividend amounts exceeding this rate are taxed at an additional rate. For the tax years 2023–2024 and 2024–2025, this drops to £1000 and £500, respectively.

For instance, if you earn £3,000 in dividends and £29,570 in earnings in the tax year 2022–2023, your taxable income after the personal allowance of £12,570 is subtracted would be £20,000. The basic tax rate band means that you would only be required to pay 8.75% of the first £1,000 of dividend income (the first £2,000 of dividend-interest is exempt from UK income tax) and 20% of the first £17,000 of wages.

Rental income taxes

You are eligible to a £1,000 tax-free annual property allowance if you rent out a room, the full house, are a self-employed landlord, or both. In other words, you are not required to inform HMRC of this.

However, you must inform HMRC if your annual rental income from renting out property is between £1,000 and £2,500. You must file a self-assessment tax return if your income is between £2,500 and £9,999 after permissible expenses or over £10,000 before allowable expenses; you may then be required to pay UK income tax.

How to submit your taxes in the United Kingdom

Paye as you Earn (Paye)

In the UK, the PAYE system is used by most persons to pay income tax. Before paying your salary or pension, employers and pension providers utilise PAYE to deduct income tax and national insurance contributions. How much income tax you are paying is shown by the tax code on your payslip or income statement (which is also posted to you every March).

Self-assessment tax returns

• Self-assessment returns may be required if you:
• are self-employed and generate more than £1,000 annually
• are partners in a business
• Earn more than £100,000 annually as a worker or retiree.
• If you or your partner are claiming child benefits and your income is over £50,000,
• earned £2,500 from other untaxed sources, such as tips, rental income from property, savings, investments, dividends, or income from abroad.

Deadlines for self-assessment income tax in the UK

Your employer or pension provider will pay the necessary income taxes in the UK if you are an employee or get a company or private pension. You are in charge of filing a self-assessment tax return and paying your own UK income tax if you are self-employed or need to claim additional income or tax refunds.

Any tax year’s registration for self-assessment must be done by 5 October of the following year. You have until October 5, 2023, to register if you want to be assessed as a sole proprietor for the 2022–2023 fiscal year, for example. If you are submitting on paper, the deadline is October 31, 2023; if you are filing online, the deadline is January 31, 2024.

Additionally, the tax payment deadline is January 31. If you make advance payments, also referred to as payments on account, you can be subject to a second payment deadline.

When a deadline is missed, a penalty and interest charge are due.

Income tax forms in the UK

There are two ways to pay self-assessed income tax in the UK:

• Online. You can also check your information, print tax calculations, and refer to previously submitted tax returns or those that haven’t been finished. You must register for the service online using your unique taxpayer reference (UTR) and activate it with a code delivered by mail before using it for the first time.
• On paper, by downloading and completing form SA100. 

When declaring income tax in the UK, you might also need to complete a few more forms, often known as supplementary pages. These consist of:

• Directors of the company or its staff: SA102
• SA103S or SA103F for self-employment
• Partnerships in business: SA104S or SA104F
• UK real estate earnings: SA105
• Gains or income from abroad: SA106
• Gains in capital: SA108
• Dual residents or non-UK citizens: SA109

Income tax rates in the UK

In the UK, income tax is calculated using a system of bands. While Scotland & WalesWales have its own tax bands, England, Wales, and Northern Ireland all utilise the same thresholds.

2023–2024 tax year (6 April 2023 – 5 April 2024)

* assumes individuals are in receipt of the Standard UK Personal Allowance.

** those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

2022–2023 tax year (6 April 2022 – 5 April 2023)

* assumes individuals are in receipt of the Standard UK Personal Allowance.

** those earning more than £100,000 will see their Personal Allowance reduced by £1 for every £2 earned over £100,000.

You may manually determine whether your employer is withholding enough income tax from your paychecks by using the UK income tax calculators if you’re searching for an idea of how much income tax you could have to pay.

The government’s handy reckoner tool allows the self-employed to plan for their self-assessment tax payment.

Personal tax allowance and deductions in the UK

The basic personal allowance up to 2028 is £12,570. This indicates that income up to this level is not subject to income tax assessment. Everyone receives the same personal allowance, however if you make more than £100,000, it is lowered. You are not eligible for the personal allowance and must pay taxes on all of your income if you make £125,000 or more.

There are several more UK income tax reliefs and reductions that may be applicable, in addition to the allowances for married couples and blind people.

Tax deductions for expenses at work include:

• Travel expenses for business purposes are reimbursed at a rate of 45p for the first 10,000 miles and 25p for each additional mile.
• Expenses for travel, lodging, meals, and parking associated with business travels.
• Expenses associated with work uniforms include those for washing, mending, and purchasing new uniforms and protective gear for particular professions.
• Membership fees costs that have been authorised by HMRC.
• If you work from home, you can receive tax relief on your heating, lighting, and phone expenses.

Both paid employees and professionals who work on their own will be able to submit work-related tax relief claims, but they will need to provide receipts. The self-employed must declare business expenses and tax reliefs when filing their returns., whereas employees must apply online for HMRC to change their tax code.

Personal tax reliefs in the UK

The UK grants a 10% tax break on continued support given to a former spouse, civil partner, or child under the age of 21. Under certain circumstances, this UK income tax relief is applicable up to a maximum UK tax refund of £326 each tax year.

Pension payments: If your income is subject to the PAYE system, Yyou can automatically obtain a basic rate tax reduction on private pension contributions up to 100% of your yearly earnings. If you have a higher rate income, you will also need to apply for higher rate relief via a tax return.might occasionally need to personally apply for this UK tax.

Contributions to Charity: For the majority of people, donations to charities are entirely tax-free, especially if they are done through Gift Aid or payroll deductions. A higher rate relief can be claimed via a tax return for gift aide relief.

UK income taxes for foreigners

The worldwide income of an expat who is a resident of the UK for tax purposes will be taxed. With roughly 130 nations, including Australia, France, Germany, the Netherlands, Russia, Saudi Arabia, the United Arab Emirates, and the United States, there are agreements in place to prevent double taxation. If you receive income from another nation that is taxed at the source, you can typically file a tax relief claim to recover some or all of this tax.

For pensions, rental income, and specific offshore jobs, there are several distinctions that are specific to the UK.

Foreign pensions

If you are currently a legal resident of the UK or were one within the preceding five years, income from an overseas pension is taxable. However, UK income tax is not applied to the first 10% of your foreign pension income.

If you accept improper payments from a non-UK pension, there is a severe penalty that could cost you up to 55% of your pension. These unlawful payments consist of:

attempting to obtain a lump-sum, tax-free payout that exceeds 25% of your pension amount. Individuals are typically only permitted to receive a lump payment of up to 25% tax-free, with the remaining 75% being subject to tax.

receiving pension payments prior to turning 55, unless the pension plan expressly permits it.

receiving pension payments even after passing away.

Rent from homes outside the UK

Residents are required to report rental income from any property they rent out globally on a UK tax return. However, you can lower your reportable foreign property rental income by using losses from one overseas property to balance gains from other non-UK assets.

specific offshore jobs

People who work offshore or in the gas or oil industries must abide by specific rules. Individuals who work for the EU, the UK government, or as volunteers in the development sector are subject to additional regulations.

Refunds of taxes in the UK

For instance, if you were employed and had too much tax deducted from your salary, if you quit working, if you took out a pension or life annuity plan, or if you live in one country but have income in another, you may be eligible for British tax refunds (rebates). Furthermore, you can get a tax refund in the UK if you declared personal expenses on your tax return.

According to some P800 tax computations, you can submit an online tax refund claim (only once your tax has been calculated, which happens between June and October). Within five to six weeks of submitting your UK tax return application, you ought to get your money.

UK tax penalties

You will be required to pay a penalty fee if you need to send a tax return but miss the deadline for sending it or paying your bill.

First, if your tax return is filed more than three months late, you will be charged a £100 late filing penalty. If it’s later or if you pay your tax bill late, you’ll then be required to pay more. Interest fees are also assessed for late payments. If you have a good reason, you can contest the fines, though.

Advisory services for UK income taxes

The resources discussed in this post are meant to provide information only and are not intended to be construed as personalised tax advice. Therefore, whenever you have unique tax concerns or queries, you should always speak with your own tax specialist. Unbiased is an impartial online comparison site where you can hunt for a financial advisor that can fit your demands.

The following are the primary organisations that can assist you in finding an accountant or tax advisor:

• English and Welsh Institute of Chartered Accountants (ICAEW)
• Association of Chartered Certified Accountants (ACCA) Institute of Chartered Accountants of Scotland (ICAS) (ACCA)
• Tax Institute of America (CIOT)
• Accounting Technicians Association (AAT)
• Association of Taxation Technicians, Taxes For Expats (ATT)
• Chartered Institute of Management Accountants (CIMA)

You can get assistance from the HMRC if you need it to understand your UK tax liabilities or reporting requirements.