Your Bullsh*t-Free Guide to Income Tax in the UK

You will contribute less if:

• You’re a married woman or widow with a valid ‘certificate of election’.
• You defer National Insurance because you’ve got more than one job.

If you're both employed AND do self-employed work, your employer will deduct your Class 1 National Insurance from your wages and you have to pay Class 2 and 4 payments for your self-employed work.

• Change your personal details (name, address, etc.)
• Or become self-employed

If you become unemployed or can’t work due to illness, you may be able to apply for National Insurance credits to fill any gaps in your contributions. ‘Cash in hand’ payments for work must be declared to HM Revenue and Customs (HMRC).

How do I know if I’m self-employed?

You’re probably self-employed if you:

• Run your own business and take responsibility for its success or failure
  
  
• Have several customers at the same time
  
  
• Can decide how, where and when you do your work
  
  
• Can hire other people at your own expense to help you or to do the work for you
  
  
• Provide the main equipment to do your work
  
  
• Are responsible for finishing any unsatisfactory work in your own time
  
  
• Charge an agreed fixed price for your work
  
  
• Sell goods or services to make a profit (including through websites or apps)
  
  

You can be both employed and self-employed, for example if you work for an employer during the day and run your own business at night. 

Taxback can file your UK self assessment tax return for you and we will help you to minimise your tax liability.

If you’re a UK resident living abroad, you may be taxed on your income in the UK and the country you reside in. However, if the country you’re in has a double taxation agreement with the UK, you may not have to pay in both jurisdictions. Depending on this, you can apply for partial or full relief before you’re taxed or apply for a UK tax refund after you’ve been taxed.

To check if you are due any tax back, use our FREE tax refund calculator now!

2. Your UK Tax Code

One of the reasons you may be taxed incorrectly is if you’re using the wrong tax code. Your tax code appears on your payslip and is used by your employer to calculate exactly how much tax to take from your pay or pension. HMRC will tell them which code to use and it typically starts with a number and ends with a letter.

For example 1257L is the standard tax code for people who have one job or pension in the 2022/23 tax year.

UK Tax Code Letters Explained

Tax codes with ‘K’ at the beginning indicate that you have income that isn’t being taxed another way and it’s worth more than your tax-free allowance.

For most people, this happens when you’re:

● Paying tax you owe from a previous year from your wages or pension

● Getting benefits you need to pay tax on, such as state benefits or company benefits

Your employer or pension provider deducts the tax on the income that hasn’t been taxed from your wages or pension - even if another organisation is paying the untaxed income to you.

Employers and pension providers can’t take more than half your pre-tax wages or pension when using a K tax code.

Emergency Tax Codes

If your tax code has ‘W1’ or ‘M1’ at the end, then you’re on an emergency tax code and will pay tax on all your income above your personal allowance.

Your payslip will show:

● 1185 W1

● 1185 M1

● Or 1185 X

Reasons you may be on an emergency tax code:

● If you start a new job

● If you're working for an employer after being self-employed

● If you're getting company benefits or the State Pension

Once they have the correct details for you, your employer can update your tax code. HMRC will correct it automatically after you give your employer details of your previous income or pension.

These details will come from your P45. You’ll get your P45 from your employer when you stop working for them and it will show how much tax you’ve paid in the tax year (6 April to 5 April).

Your P45 has 4 parts (Part 1, Part 1A, Part 2 and Part 3).

 1. Your employer sends details for Part 1 to HMRC and gives you the other parts

2. You give Part 2 and 3 to your new employer (or Jobcentre Plus if you’re not working)

3. You keep Part 1A for your own records

By law your employer must give you a P45 when you leave the job. However, you won’t have a P45 if you’re starting your first job or you’re taking on a second job. In this case, your employer will need to work out how much tax you should be paying on your salary. They may use a ‘Starter Checklist’ to collect the information or may collect it another way.

The Starter Checklist has questions about any other jobs, benefits or student loans you have. It helps your employer work out your correct tax code before your first payday.

Your payslip shows your earnings before and after deductions, such as income tax and national insurance. You’ll get a payslip each time you’re paid either online or in a printed format and you can use these as proof of earnings, tax paid, and any pension contributions.

Your employer will provide you with a payslip unless you're:

• not an employee, e.g. a contractor or freelancer 
  
  
• in the police service
  
  
• a merchant seaman
  
  
• a master or crew member working in share fishing (paid by a share in the profits or gross earnings of a fishing vessel)
  
  

Your payslip must be provided to you on or before payday.

Download your FREE UK Tax Guide

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3. Income Tax Relief and Allowances in the UK

Tax relief and allowances reduce the amount of tax you need to pay. 

‘Tax relief’ means:

• You pay less tax to take account of the cost of specific things like business expenses if you’re self-employed
  
  
• Or you get tax back or get it repaid in another way, like into a personal pension
  
  

TIP: Some reliefs are granted automatically - but others you must apply for. When you apply with Taxback, we’ll check for all applicable reliefs and allowances.

Tax relief applies to pension contributions, charity donations, maintenance payments, and time spent working on a ship outside the UK.

It also applies to work or business expenses – you may be able to:

• Get tax relief on what you spend running your business if you’re self-employed (a sole trader or partner in a partnership)
  
  
• Claim tax relief if you’re employed and you use your own money for travel and things you must buy for your job
  
  

Double Taxation Relief

If you're a non-resident working the UK, you could end up being taxed twice on your income in the UK and the country where you’re resident. This means you're taxed twice on the same income. However, you may be able to avail of a tax treaty so this doesn’t happen. A tax treaty can ensure:

• Partial or full relief before you’ve been taxed
• Or a UK tax refund
  
  

Each double-taxation agreement sets out:

• The country you pay tax in
• The country you apply for relief in
• How much tax relief you get

If the tax rates in the 2 countries are different, you’ll pay the higher rate of tax.

Countries with Double Taxation Agreements:

*Double taxation agreements don’t apply to tax on gains from selling UK residential property.

Capital Gains Tax If You Live Abroad

If you live abroad, you only pay Capital Gains Tax if you make a gain on UK residential property. You won’t pay it on other UK assets, such as UK shares, and you won’t usually need to make a claim for assets you don’t pay tax on - but you should check the relevant double taxation agreement.

If you return to the UK after being non-resident, you may have to pay tax on any assets you owned before you left the UK - even if you’ve paid tax on any gains in the country you moved to. You can usually claim double-taxation relief.

Download your FREE UK Tax Guide

Get Yours Here!

Tax Relief for Employees

If you use your own money for travel to clients for business or things that are essential for your job, you may be entitled to claim tax relief.  You must have paid tax in the year you spent the money and how much you can claim depends on the rate you pay tax.

For example, if you spend £150 travelling to meet a client and you pay tax at a rate of 20%, then you can claim £30.

The rules for claiming tax relief in the UK are:

• You can only claim on items used for work that you don't use for personal purposes
  
  
• You can't claim relief on things you've spent money on where your employer has provided you with an alternative, for example if you bought a laptop but your employer has already given you one to use for work
  
  
• You need to keep records of what you spent and claim the relief within 4 years of the end of the tax year that you spent the money
  
  
• If your employer has paid for your expenses, you can't claim the relief
  
  

How to claim tax relief in the UK

How you can claim typically depends on how much you want to claim for:

Up to £2,500

You should make your claim:

• On a UK self-assessment tax return if you already file one
  
  
• With HMRC online or by posting form P87 if you don’t usually file a tax return
  
  
• By phone if you’ve had a successful claim in a previous year and your expenses are less than £1,000 (or £2,500 for professional fees and subscriptions)
  
  
• By applying with Taxback if you want to make it easy on yourself!
  
  

Over £2,500

• You can only claim using a self-assessment tax return
  
  
• You need to register if you don’t already fill one in
  
  
• You’ll get a letter telling you what to do next after you’ve registered
  
  

Apply with Taxback

How you get tax relief

How you'll receive the relief also depends on how much you are claiming for. 

Up to £2,500

If your claim is £2,500 or less for the tax year, HMRC will typically make adjustments through your tax code for the current tax year.

If you claim an estimated amount, HMRC will review it at the end of the tax year and make any adjustments through your tax code for the following year.

Claims over £2,500

If your claim is over £2,500 for the tax year, then you'll get the relief through your tax code for the current and next tax years, and receive a tax return to fill in.

They will also check your tax calculation for the previous year.

Uniforms, work clothing and tools

You may be able to claim tax relief on the cost of:

• Repairing/replacing small tools for your job like a pair of scissors or a drill
  
  
• Cleaning and repairing/replacing specialist clothing for your job
  
  

You can either claim:

• For what you spent, in this case you’ll need to keep receipts
  
  
• Or a ‘flat rate deduction’
  
  

Flat rate deductions are set amounts typically spent each year by employees in different occupations

If your occupation isn’t listed, you may still be able to claim tax relief on a flat rate deduction of £60. For example, if you pay tax at a rate of 20% you could claim £12 tax relief on the £60 flat rate deduction.

You don’t need to keep records of what you’ve paid for if you claim a flat rate deduction.

Travel and overnight expenses

If you need to travel on business, to a place which is not your ordinary workplace, you may be entitled to claim tax relief on the cost of food or overnight expenses.

You can claim tax relief for money you’ve spent on things like:

• Public transport costs
• Hotel accommodation if you have to stay overnight
• Food and drink
• Congestion charges and tolls
• Parking fees
• Business phone calls and printing costs
  
  

Business mileage, fuel and electricity costs

You may also be able to claim tax relief on business mileage. Just note that you can’t claim for travelling from home/ accommodation to work and back, unless you’re travelling to a temporary place of work.

You may be able to claim tax relief on fuel or electricity you use for business and what you can claim for depends on whether you’re using your own or a company vehicle.

You can’t claim for travelling to and from your normal place of work, unless it’s a temporary place of work.

Using your own vehicle

If you use your own vehicle for business, you may be able to claim ‘Mileage Allowance Relief’. To work out how much tax relief you can claim, add up your business mileage for the tax year and multiply it by the approved mileage rates.

You can’t claim separately for:

• fuel
• electricity
• road tax
• MOTs
• repairs
  
  

To work out how much you can claim for each tax year you’ll need to:

• Keep records of dates and mileage or your work journeys
• Add up total mileage for each vehicle type you’ve used for work
• Subtract any amount your employer pays towards your costs, (sometimes called a ‘mileage allowance’)
  
  

Approved mileage rates from tax year 2022 to 2023 

Passenger payments - cars and vans

5p per passenger per business mile for carrying fellow employees in a car or van on journeys which are also work journeys for them.

Only payments specifically for carrying passengers count and there is no relief if you receive less than 5p or nothing at all.

Using a company car for business

You can claim tax relief on the money you’ve spent on fuel and electricity for business trips in your company car. You must keep records to show the actual cost of the fuel.

If your employer reimburses part of the costs, you can claim relief on the difference.

Company cars

The charge is based on the price of the car for tax purposes (normally the list price) and accessories multiplied by an appropriate percentage based on the level of CO2 emissions and the fuel the car uses.

Car and Fuel Scale Benefits

Company vans

The charges are:

Fuel charges - company cars and vans

Cars: To calculate the benefit charge on free or subsidised fuel for private use, the appropriate percentage used in calculating car benefit is applied to a set figure known as the car fuel benefit multiplier.

The van fuel rates are:

If your employer doesn’t pay you a mileage allowance, you can claim the full approved amount of Mileage Allowance Relief. However, if your employer pays a mileage allowance to you but it’s less than the approved amount, you can claim Mileage Allowance Relief on the difference.

If your employer pays you more than the approved amount you’ll have to pay tax on the difference. It’s important to keep records of the dates and mileage for each of your work journeys.

Using multiple vehicles

You can combine your business miles if you use more than one vehicle of the same type. If you use different types of vehicles, you should calculate them separately.

Using a company car for business

You can claim tax relief on the money you’ve spent on fuel or electricity for business trips in your company car. You should keep records to show the actual cost of the fuel or electricity you’ve bought or used.

If your employer reimburses only some of the money, you can claim relief on the difference.

Professional fees and subscriptions

You may be able to claim tax relief on fees or subscriptions you pay to approved professional organisations where the membership relates to your job.

You can’t claim tax back on fees or subscriptions for:

• Life membership subscriptio
• Fees or subscriptions you don't pay for yourself (e.g. if your employer has paid for them)

Your organisation can tell you how much tax you’re allowed to claim back.

Working from home in the UKProfessional fees and subscriptions

If you work from home in the UK on a regular basis or if you are required to work from home due to COVID-19, then you may be able to claim tax relief on some of the bills you pay.

You can’t claim tax relief if you choose to work from home. And any expenses should be related to your work, such as business telephone calls or the extra cost of gas and electricity for your work area.

You can’t claim for things you use for both private and business use, for example, rent or broadband access.

Your employer can pay you up to £6 a week to cover additional costs if you have to work from home and you don’t need to keep any records.

If you’ve agreed with your employer to work at home voluntarily or choose to work at home, you can’t claim tax relief on the bills you pay.

Other equipment

In many cases, you can claim tax relief on the full cost of ''substantial equipment''. Substantial equipment includes things like a computer you need for work because it qualifies for a type of capital allowance called annual investment allowance.

You can’t claim capital allowances for cars, motorcycles or bicycles you use for work, but you may be able to claim for business mileage and fuel costs.

You claim in a different way for small items that will last less than 2 years, such as uniforms and tools.

If your employer gives you money for the item then you can reduce the amount you claim tax relief on by the amount of money your employer gives you.

If your financial affairs are more complicated, you may need to pay income tax and National Insurance through self-assessment. In this case, you’ll need to file a yearly tax return. You must also fill in a tax return if your untaxed income is over £2,500, or contact the income tax helpline if it’s less than £2,500.

You can apply with Taxback for help with filing your self-assessed tax return.

Marriage Allowance

Marriage Allowance lets you transfer £1,260 of your Personal Allowance to your husband, wife or civil partner if they earn more than you. This reduces their tax by up to £252 in the tax year (6 April to 5 April of the next year).

To benefit as a couple, you must have an income of £12,570 or less and you can backdate your claim to include any tax year since 5 April 2018 that you were eligible for Marriage Allowance.

If your partner has died since 5 April 2018, you can still claim.

You can get Marriage Allowance if all of the following apply:

• You’re married/in a civil partnership
• You don’t earn anything/your income is £12,570 or less
• Your partner’s income is between £12,571 and £50,270 (or £43,662 if in Scotland)
  
  

It won’t affect your application for Marriage Allowance either of you are:

• Receiving a pension
• Living abroad - as long as you get a Personal Allowance
  
  

If you or your partner were born before 6 April 1935, then you might benefit more as a couple by applying for Married Couple’s Allowance instead.

You can’t get Marriage Allowance and Married Couple’s Allowance at the same time.

You can apply for Marriage Allowance online with HMRC and if successful, changes to your Personal Allowances will be backdated to the start of the tax year (6 April).

HMRC will give your partner their extra allowance either:

• By changing the tax code -  this can take up to 2 months
• When they send their self-assessment tax return, if they’re self-employed

Your tax code will also change if you’re employed or get a pension and your new code will end with ‘N’.

If your circumstances change

Either of you can cancel your Marriage Allowance with HMRC and the date the allowance ends depends on who cancels it.

For example, if you stop transferring the allowance to your partner, it will run until the end of the tax year (5 April).  But if your partner asks to stop receiving your allowance, they'll backdate the change to the start of the tax year you first started transferring it.

If you get divorced or dissolve your civil partnership, you can cancel the allowance online.

If you’re currently transferring your allowance to your partner you can choose to:

• keep transferring it until the end of the tax year (5 April)
• backdate the change to the start of the tax year (6 April)

If you ask to stop receiving your partner’s allowance, it will run until the end of the tax year.

If your income changes

You can contact Taxback and we can tell you if:

• Claiming Marriage Allowance will still benefit you 
• Or you need to cancel your Marriage Allowance
  
  

If your partner dies after you’ve transferred some of your Personal Allowance to them:

• Their estate will be treated as having the increased Personal Allowance
• Your Personal Allowance will go back to the normal amount
  
  

If your partner transferred some of their Personal Allowance to you before they died:

• The Personal Allowance will remain at the higher level until the end of the tax year (5 April)
• Their estate will be treated as having the smaller amount
  
  

Savings and dividends allowances

You have tax-free allowances for both:

● savings interest

● dividends if you own shares in a company

You'll pay tax on any interest or dividends over your allowance.

4. Capital Gains Tax

Capital Gains Tax (CGT) Rates and annual tax-free allowances

CGT is a tax on the profit when you sell (or ‘dispose of’) an ‘asset’ that’s increased in value. It’s the gain you make that’s taxed, not the amount of money you receive. Some assets are tax-free and others you must pay tax on.

Every tax year, almost anyone who is liable to CGT gets an annual tax-free allowance. This is called the ‘Annual Exempt Amount’.

This means you don’t have to pay Capital Gains Tax if all your gains in a year are under your tax-free allowance.

You pay Capital Gains Tax on the gain when you sell (or ‘dispose of’):

● personal possessions worth £6,000 or more, excluding your car

● property that isn’t your main home

● your main home if you’ve let it out, used it for business or it’s very large

● shares that aren’t in an ISA or PEP

●  business assets

These are known as ‘chargeable assets’. Depending on the asset, you may also be able to reduce any tax you pay by claiming a relief. If you dispose of an asset you jointly own with someone else, you have to pay Capital Gains Tax on your share of the gain. You only have to pay Capital Gains Tax on your total gains above an annual tax-free allowance.

You don’t pay Capital Gains Tax on certain assets, including any gains you make from:

● ISAs or PEPs

● UK government gilts and Premium Bonds

● betting, lottery or pools winnings

● gifts to your husband, wife, civil partner or a charity.

When someone dies

When you inherit an asset, Inheritance Tax is usually paid by the estate of the person who’s died. You only have to work out if you need to pay Capital Gains Tax if you later dispose of the asset.

Overseas assets

You may have to pay Capital Gains Tax even if your asset is overseas. There are special rules if you’re a UK resident but not ‘domiciled’ and claim the ‘remittance basis’.

If you’re abroad

You have to pay tax on gains you make on residential property in the UK even if you’re non-resident for tax purposes. You don’t pay Capital Gains Tax on other UK assets, e.g. shares in UK companies, unless you return to the UK within 5 years of leaving.

The annual tax-free allowance allows you to make a certain amount of gains every year before you have to pay tax. Nearly everyone who is liable to CGT gets this tax-free allowance.

There’s one Annual Exempt Amount for:

• most people who live in the UK
• executors or personal representatives of a deceased person’s estate
• trustees for disabled people (most other trustees get a lower Annual Exempt Amount)

Non-residents who disposed of a UK residential property will be liable to CGT and, in most cases, will be able to claim the Annual Exempt Amount in the same way as for UK residents.

However, this Annual Exempt Amount won’t be available to companies who dispose of a UK residential property as other allowances may be claimed.

Annual Exempt Amounts (AEA)

The AEA for the tax year 2023-2024 will be £6,000 for individuals and personal representatives, and £3,000 for the majority of trustees.

The AEA will be permanently fixed at £3,000 for individuals and personal representatives, and £1,500 for most trustees, for the tax year 2024-2025 and subsequent tax years.

The measure also limits the amount of CGT proceeds that can be reported to £50,000.