Taxes in the UK – what you need to know

Table of Contents

1. Taxes in the UK – key facts
2. Tax declaration methods for employees and the self-employed
3. Personal Allowance in England
4. What Personal Allowance will apply in the 2023/2024 tax year?
5. Other tax reliefs in the UK
6. UK personal allowance and income tax

The UK has favourable tax rules for both employees and business owners. The rules include a high personal allowance and a number of other reliefs that you can benefit from, such as being a shareholder in a company or renting out a property. What does UK tax look like, what reliefs are available and what else should you be aware of when filing your taxes in the UK?

Taxes in the UK – Key Information

The main tax in the UK is income tax, although the tax year in the UK runs from 6 April of the current year to 5 April of the following year.

Tax declaration methods for employees and the self-employed

If you are an employee, your employer is required to process your tax return through the PAYE system. At the end of the tax year, you will receive a P60 form summarising the previous tax year. It shows your earnings, tax deductions and National Insurance Contributions (NICs).

However, if your income comes from business, rental or other sources, you will need to file a self-assessment tax return. Different deadlines apply depending on how you choose to file your return:

• If you file online – you have until the end of January of the following calendar year (e.g. for the 2022/2023 tax year, you must file by 31 January 2024).
• If you file a paper return by post – you must do so by the end of October of the calendar year (e.g. for the 2022/2023 tax year, you must file by 31 October 2024).

Personal Allowance in England

The standard Personal Allowance, the basic tax-free threshold in the UK, was £12,570 for the 2021/2022 tax year, and the same amount applies for the 2022/2023 tax year.
This is £241.72 per week or £1,047.50 per month! It’s important to note that the personal allowance is the same in England, Northern Ireland, Scotland and Wales.

This means that you only pay income tax on the income that exceeds your personal allowance for the year. If your earnings fall below the lowest tax bracket and your employer has already deducted tax on your behalf, you will receive a tax refund for any overpayment.
For people with a relatively high annual income, there are additional rules regarding the personal allowance:

• The personal allowance is reduced by £1 for every £2 of income over £100,000.
• If you earn more than £125,000, you are not entitled to any Personal Allowance.

What Personal Allowance Will Apply in the 2023/2024 Tax Year?

Over the years, the personal allowance in the UK has increased. In 2010, for example, it was £6,500. As you can see, the growth over just over 10 years has been significant.

Unfortunately, we already know that for the 2023/2024 tax year, the personal allowance will remain the same as it is now – £12,570. In addition, Chancellor Jeremy Hunt announced last November that the personal allowance will remain unchanged until the end of 2026. This is not good news for those who pay tax in the UK. The decision is being influenced by the economic situation in the UK and across Europe, as well as the ongoing conflict in Ukraine.

It’s worth mentioning that you don’t need to worry about claiming the Personal Allowance when filing your tax return – the deduction is applied automatically.

Other Tax Reliefs in the UK

In addition to the Personal Allowance, you may also be eligible for other tax reliefs:

• Savings interest – up to £5,000 of interest income is tax free, but only if your other income does not exceed £17,500. If your income is equal to the personal allowance (£12,570), the entire £5,000 of interest will be tax free.
• Dividends – if you own shares in a company, the first £2,000 of dividends are tax free. You can also transfer some of the shares to your spouse so that you can both benefit from the relief.
• The first £1,000 of self-employed income is tax-free.
• Marriage allowance or donations to charity.
• Trading allowance – if you have a second job, such as babysitting or hiring out equipment, income from this activity is tax-free up to £1,000.
• Property allowance – if you own a property and earn income from renting it out, you can claim a tax-free allowance on income up to £1,000.
• Rent-a-Room Scheme – If you rent out rooms in your home under the Rent-a-Room Scheme, you can claim up to £7,500 a year in tax relief.
  The rooms must have furniture and be part of your main residence.

Personal Allowance in the UK and Income Tax

As mentioned above, the same tax-free allowance applies throughout the UK. However, there are differences in how income above this threshold is taxed.

Tax bands in England, Northern Ireland and Wales

• No tax on income up to £12,570.
• Income between £12,571 and £50,270 is taxed at 20%.
• Income between £50,271 and £150,000 is taxed at 40%.
• Income over £150,000 is taxed at 45%.

Tax brackets in Scotland

• No tax on income up to £12,570.
• Income between £12,571 and £14,667 is taxed at 19% (starter rate).
• Income between £14,668 and £25,296 is taxed at 20% (basic rate).
• Income between £25,297 and £43,663 is taxed at 21% (intermediate rate).
• Income between £43,664 and £150,000 is taxed at 41% (higher rate).
• Income over £150,000 is taxed at 46% (top rate).

The second most important tax in the UK is Corporation Tax (the UK equivalent of Polish CIT), which is currently 19%, regardless of income.

Summary – Taxes in the UK

• The UK tax year runs from 6 April of the current year to 5 April of the following year.
• If you are an employee, your employer will pay your tax through the PAYE system.
• The personal allowance is £12,570.
• The Personal Allowance is applied automatically.
• In addition to the personal allowance, you may be eligible for other tax reliefs.
• Scotland has different tax bands to England, Wales and Northern Ireland.