UK Tax laws can be a bit of a minefield. To be fair, that’s true of almost every country, but there is something about the British mentality which leaves people nervous about authority and fearful of getting taxation wrong.

The UK tax system looks incredibly complex at first glance, having one of the longest sets of tax codes out of all major countries. However, the tax codes are well documented and there are not as many ‘gotchas’ as you might expect.

In the UK, people pay Value Added Tax at the point of purchase on many goods. This is factored into the price that you see on the shelves, so it is something that the average consumer does not need to worry about.

Income tax is handled by your employer unless you are self-employed (in which case it is something that you factor into your tax return), and there are other taxes such as inheritance and capital gains that are considered separately. If you have any employer or employee disputes, resources such as can offer free guidance.

Tax and National Insurance

Each person is considered their own entity for tax purposes, even if you live in High Wycombe in the UK you’ll still be eligible. Spouses are taxed as individuals, although there is a small spousal allowance that is taken into consideration for income tax.

Before you pay tax in the UK, you will need to get a national insurance number. If you were born in the UK then you will already have one. The situation for those in the EEA is something that is in a state of flux right now, given the UK’s plans to leave the European Union, so it would be a good idea to seek advice if you are from Europe and considering moving to the UK.

The UK’s tax year runs from the 6th April in one year to the 5th April in the following year, although business owners can set their own accounting years.

What Do You Pay Tax On?

If you do not live in the UK, then the only thing that you pay tax on is income that you earned within the UK – whether that’s dividends, capital gains, rental income or other types of pay.

If you do live in the UK, then you will be taxed on all income that you earn, even foreign income and any income from a pension.

Most forms of tax are related to your income. There is a personal allowance, and any income that you take in below that level is exempt from tax.

Once you earn above that personal income threshold you will enter a tax band, and pay a certain percentage of tax on income in that band. When you earn enough to move into the next tax band, any income over that amount is taxed at a higher rate.

There is a common misconception that pay rises make you “worse off” because you pay more tax. This is not true. When you move into a new tax band, only the income that is above the threshold for that band is taxed at the higher rate, so you are still making more money!