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Who pays Income Tax?

Income Tax is payable on your overall 'taxable income' during the tax year (6 April to 5 April) if it goes above a certain level. This includes your earnings from any job, Jobseeker's Allowance if you're claiming it, certain other benefits and any interest you get on your savings.

How much do you pay?

Everyone in the country can have a certain amount of income without having to pay any Income Tax. This is called your 'personal allowance'. This tax year (2008-2009), the personal allowance for everyone under the age of 65 is £5,435 - meaning you won't pay any Income Tax on income up to that amount.

But remember that the Chancellor recently announced that this personal allowance will be increased by £600 from £5,435 to £6,035 in September 2008. If you are owed any extra money because of this change, you will get it in September 2008.

If your total income for a year is above the personal allowance, you'll pay Income Tax on the extra at the following rates:

Income Tax rates 2008-2009

For example, if your total income comes to £10,000 in a tax year:

• you will pay no Income tax on the first £5,435, leaving you with £4,565
• this money will be taxed at 20 per cent (£913)

This means that over the course of the tax year, you'll pay £913 in Income Tax.

If your earnings include interest you’ve earned on any savings you have, this is also subject to tax.

• Tax on savings and investments (money tax and benefits section)

Blind person's allowance

Your tax-free allowance could rise if you qualify for the blind persons allowance, meaning you'll pay less tax.

• More about blind person's allowance from HMRC (opens new window)

How you pay Income Tax if you're employed

If you're employed, any tax you owe is usually deducted directly from your wages by your employer, along with your National Insurance (NI) contributions. The system's called Pay As You Earn (PAYE). You'll know how much tax and NI you've paid as it'll be shown on your payslip.

How does your employer know how much to deduct?

Your employer tells your Tax Office how much you're earning and they'll give you a tax code showing how much Income Tax and NI needs to be deducted.

You'll see the tax code displayed on your payslip. Usually its made up of three numbers followed by a letter.

• More about understanding your tax code (money, tax and benefits section)
• Tax for the employed (money, tax and benefits section)

Tax forms and Income Tax

After you start work, you'll receive a few bits of paperwork from your employer or Tax office. You'll need these for your next job, or if you want to query the amount of Income Tax you've paid so keep them in a safe place. The most important forms are

• More about tax forms when you start work (money, tax and benefits section)

If you're a student working in the holidays

If you're a student and working over the holidays, your earnings over the whole year may be low enough that you don't need to pay any Income Tax.  Ask your employer for form P38S if you think it applies to you - to prevent paying Income Tax from the outset. But you'll still pay National Insurance if your earnings are £100 or more a week.

If you don't complete form P38S you may start off by paying tax and then have to claim it back at the end of the tax year.

• Tax on casual, part-time or temporary work (money, tax and benefits section)
• More about National Insurance (money, tax and benefits section)

Reclaiming overpaid tax

You may have paid too much Income Tax if you're a student and you didnt fill in the right form when you started working, or if you were given an emergency or wrong tax code when you started working.

• Reclaiming tax (money, tax and benefits section)

Income Tax if you're self-employed

If you work for yourself, it's your responsibility to pay the right amount of tax. You'll need to complete a Self Assessment tax return and pay Income Tax direct to HM Revenue & Customs.

• More information about tax for the self-employed (money, tax and benefits section)

Income Tax on savings

If you've got savings, Income Tax at 20 per cent is automatically deducted from the interest before you get it. If your total income in the year isn't enough in the year to need to pay this, you can claim some or all of the tax back.

• How to claim back tax on savings interest (money, tax and benefits section)

Income Tax and benefits

Some state benefits you may be receiving need to be included if you're calculating your personal income. Some are tax-free.