Taxation
Income tax
People in the UK have to pay tax on their income, which includes:
- wages from paid employment
- profits from self-employment
- taxable benefits
- pensions
- income from property, savings and dividends.
Money raised from income tax pays for government services such as roads, education, police and the armed forces.
For most people, the right amount of income tax is automatically taken from their income from employment by their employer and paid directly to HM Revenue & Customs (HMRC), the government department that collects taxes. This system is called ‘Pay As You Earn’ (PAYE). If you are self-employed, you need to pay your own tax through a system called ‘self-assessment’, which includes completing a tax return. Other people may also need to complete a tax return. If HMRC sends you a tax return, it is important to complete and return the form as soon as you have all the necessary information.
You can find out more about income tax at www.hmrc.gov.uk/ incometax. You can get help and advice about taxes and completing tax forms from the HMRC self-assessment helpline, on 0845 300 0627, and the HMRC website at www.hmrc.gov.uk
National Insurance
Almost everybody in the UK who is in paid work, including self-employed people, must pay National Insurance Contributions. The money raised from National Insurance Contributions is used to pay for state benefits and services such as the state retirement pension and the National Health Service (NHS).
Employees have their National Insurance Contributions deducted from their pay by their employer. People who are self-employed need to pay National Insurance Contributions themselves.
Anyone who does not pay enough National Insurance Contributions will not be able to receive certain contributory benefits such as Jobseeker’s Allowance or a full state retirement pension. Some workers, such as part-time workers, may not qualify for statutory payments such as maternity pay if they do not earn enough.
Further guidance about National Insurance Contributions is available on HMRC’s website at www.hmrc.gov.uk/ni
A National Insurance number is a unique personal account number. It makes sure that the National Insurance Contributions and tax you pay are properly recorded against your name. All young people in the UK are sent a National Insurance number just before their 16th birthday.
A non-UK national living in the UK and looking for work, starting work or setting up as self-employed will need a National Insurance number. However, you can start work without one. If you have permission to work in the UK, you will need to telephone the Department for Work and Pensions (DWP) to arrange to get a National Insurance number. You may be required to attend an interview. The DWP will advise you of the appropriate application process and tell you which documents you will need to bring to an interview if one is necessary. You will usually need documents that prove your identity and that you have permission to work in the UK. A National Insurance number does not on its own prove to an employer that you have the right to work in the UK.
You can find out more information about how to apply for a National Insurance number at www.gov.uk
Income tax is paid on wages, self-employment profits, taxable benefits, pensions, and income from property, savings and dividends. It pays for government services such as roads, education, police and the armed forces. Most employees pay through Pay As You Earn: the employer takes the correct amount and sends it to HM Revenue & Customs. Self-employed people use self-assessment and complete a tax return. National Insurance Contributions are paid by almost everyone in paid work, including self-employed people. This money pays for state benefits and services such as the state retirement pension and the NHS. Employees have contributions deducted by their employer; self-employed people pay themselves. Paying too little can mean missing certain contributory benefits, such as Jobseeker’s Allowance or a full state retirement pension. A National Insurance number is a unique personal account number recording your tax and contributions. Young people are sent one before their 16th birthday. A non-UK national looking for work, starting work or setting up as self-employed will need one, but can start work without it. They telephone the Department for Work and Pensions to arrange it if they have permission to work; the number does not by itself prove the right to work.
The handbook text is reproduced under the terms printed in Life in the United Kingdom: A Guide for New Residents, 3rd edition: © Crown copyright 2013. It is reproduced accurately, the title is given, and this site does not use the Home Office crest or imitate the official edition. We are not an official publication. The reproduced text is the 3rd edition (2013). Later official impressions changed some references from the Queen to King Charles III and renamed some institutions. Where something looks dated, check the current official handbook on GOV.UK.
Practice questions
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Which of the following is a source of income that is subject to UK income tax?
Income tax applies to profits from self-employment, along with wages, pensions and some benefits.For most employees, how is income tax normally collected?
Most employees are taxed through PAYE, with their employer passing the tax to HMRC.What is one main purpose of National Insurance Contributions?
National Insurance Contributions help pay for state benefits and services, including the state retirement pension and the NHS.Under the handbook, what applies to a non-UK national who has permission to work and is starting a job?
A non-UK national can start work without a National Insurance number, although one is needed for tax and contributions records.