Understand income tax with greater clarity.
Explore how income tax works, the main income categories, tax allowances and deductions, and the factors that can affect how much tax you may need to pay.
Know what makes up taxable income.
A clear overview can make tax terminology and calculations easier to understand.
What is income tax?
Income tax is a tax charged on certain types of income. Depending on your circumstances, this can include earnings from employment, self-employment, pensions, savings, investments and other taxable sources.
Your taxable income is not always the same as your total income.
Tax rules can allow certain allowances, reliefs or deductions to be taken into account when working out the amount of income that is taxable.
The amount of tax ultimately due can depend on your income, circumstances and the tax rules that apply to you.
This page is designed as an educational starting point and does not provide personalised tax advice.
Different types of income can have different tax considerations.
Understanding where your income comes from is an important first step when learning about your tax position.
Employment income
Salary, wages, bonuses and certain employment benefits can form part of your taxable income.
Self-employment
If you work for yourself, the way taxable profit is calculated can differ from simply looking at total business income.
Savings income
Interest earned from savings can be subject to income tax, although specific allowances and rules may apply.
Dividend income
Dividends can have their own tax treatment and may be taxed differently from employment income.
Pension income
Pension income can be taxable depending on the type of pension and the circumstances in which it is received.
Property income
Income from property can involve specific tax rules, allowable expenses and reporting considerations.
A simple way to understand the calculation process.
The exact calculation depends on your circumstances, but the process can be understood through a few broad stages.
Identify your income
Consider the different taxable income sources you received during the relevant tax year.
Consider allowances
Certain allowances and reliefs may reduce the amount of income that is subject to tax.
Apply tax rates
Tax rates can apply to different portions of taxable income, depending on the applicable rules and circumstances.
Check your position
Your final tax position can depend on deductions, reliefs, payments already made and other relevant factors.
Allowances can change how much income is taxable.
Not every pound of income necessarily receives the same tax treatment. Depending on your circumstances, different allowances and reliefs may be relevant.
Personal allowance
A personal allowance may allow some income to be received before income tax becomes payable, subject to eligibility and the applicable rules.
Savings allowance
Certain taxpayers may benefit from a savings allowance that affects how much savings interest is taxable.
Dividend allowance
Dividend income can have a separate allowance and tax treatment depending on the relevant tax year.
Pension contributions
Certain pension contributions may qualify for tax relief, subject to the applicable rules and limits.
Allowable expenses
Some expenses may be deductible for specific types of income, particularly where self-employment or property income is involved.
See how the underlying idea works.
These simplified examples are for education only. They do not represent personalised tax calculations or guarantees.
Employment income
An employee receives salary during the tax year. Their tax position can depend on total taxable income, applicable allowances and the amount already collected through PAYE.
Income → Allowances → Tax calculationMultiple income sources
Someone receiving employment income plus savings interest may need to consider how the different income sources fit together under the relevant tax rules.
Salary + Savings → Combined positionSelf-employed income
A self-employed person may need to calculate taxable profit rather than simply treating total business turnover as taxable income.
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Income Tax FAQs
Common questions to help you understand the fundamentals of income tax.
Make sense of your income tax.
Start with the fundamentals, understand the terminology and explore related tax resources before making financial decisions.