New to UK tax? Learn the essentials, jargon-free.

Why You Need to Understand This Stuff

Understand UK tax to keep more money, avoid surprises, and claim your savings.

With that context in mind, let's break down how the tax system impacts your finances.

The Two Big Ones: Income Tax and National Insurance

Most employees only deal with two UK taxes: Income Tax and National Insurance (NI). Both are deducted from your salary before you are paid, so you receive your income after these amounts have already been taken out.

Income Tax: What You Pay on Earnings

Income Tax applies to earnings above your tax-free allowance. For 2024-25, that's £12,570. Earnings below this aren't taxed.

Above that threshold, you pay in bands:

Personal Allowance: £0-£12,570 = 0% (tax-free) Basic Rate: £12,571-£50,270 = 20% Higher Rate: £50,271–£125,140 = 40% Additional Rate: £125,141+ = 45%

Real Example

You earn £35,000. Here's exactly what you pay: First £12,570: £0 (personal allowance). The next £22,430 (£35,000 minus £12,570) is taxed at 20%, which equals £4,486. Therefore, your total Income Tax for the year is £4,486.

Each month, that's about £374—enough for an extra weekend getaway every year, all covered by your tax payments.

National Insurance is different from Income Tax. The thresholds and rates aren't the same. Money from NI helps fund the NHS, pensions, and some benefits.

Up to £12,570 per year: 0% £12,570-£50,270: 12% Over £50,270: 2%

NI contributions begin at the same earnings threshold as Income Tax (£12,570), but you pay different rates. For someone with a £35,000 salary, £2,692 is taken out in NI each year before you receive your pay.

Added together, your total tax and NI deductions are £7,178 per year, which means your take-home pay is £27,822 a year, or about £2,319 each month after these amounts have been taken out.

What National Insurance Actually Covers

NHS healthcare (free at point of use)
State pension (need 35 years of contributions for the full amount)
Jobseeker's Allowance and other benefits
Statutory sick pay and maternity leave

Think of NI as insurance—your payments secure coverage, whether you claim or not.

PAYE: How Your Tax Gets Deducted

Most employees pay tax through Pay As You Earn (PAYE), which means your employer subtracts Income Tax and NI every month before you get paid and sends them directly to HMRC.

How PAYE Works

HMRC sends your employer your tax code 2. Your employer uses this code to work out how much tax and NI to take from your pay 3. These deductions happen each month before you receive your salary 4. You get your take-home pay 5. Your employer sends the tax and NI to HMRC for you

No forms, no bank transfers, no drama. For most people, PAYE means you'll never need to file a tax return.

The Upsides

It's automatic
Payments are spread across the year
Employer handles paperwork

The Downsides

Less control over payment timing
Overpayments with multiple jobs or changing circumstances
Doesn't automatically include all eligible deductions

Tax Codes: The Secret Language

An incorrect tax code can cost you hundreds, so always check to avoid costly errors.

Common Tax Codes

1257L: Standard code for 2024-25. You get the full £12,570 personal allowance.

1257M: You receive Marriage Allowance from your spouse, which means you get an extra £1,260 tax-free, saving £252 each year. If you're eligible, apply to avoid missing out.

1257N: You've transferred Marriage Allowance to your partner. Your allowance drops to £11,310.

K codes: You owe HMRC money. Perhaps you have a company car or unpaid tax from previous years. HMRC collects it through your wages.

0T: No personal allowance. Common if you earn over £125,140, or you're on emergency tax temporarily.

BR: All your income from this source is taxed at 20%. Usually a second job or pension.

D0/D1: All income taxed at 40% or 45%. For higher earners with multiple income sources.

How Tax Codes Work

Take 1257L:

1257 = Your personal allowance is £12,570 (divide by 10)
L = You get the standard tax-free allowance

If your code is wrong, review it. People overpay or underpay because they overlook HMRC’s coding notice.

When to Check Your Code

Starting a new job
Getting a pay rise that pushes you into a new tax band
Taking a second job
Starting to receive benefits (company car, medical insurance)
Moving between England and Scotland

You can check and update your tax code through your Personal Tax Account.

Tax Allowances and Deductions

Use these legal allowances to cut your tax bill by hundreds next year.

In addition to your personal allowance, there are more ways you can legally reduce your tax bill.

Marriage Allowance

One partner earns under £12,570? The other earns under £50,270? You can transfer £1,260 of the unused allowance to your spouse, saving up to £252 per year.

This is money you don't have to work for. Apply once through HMRC, and it renews automatically. You can even backdate your claim up to four years.

Pension Contributions

Every pound you put into a workplace pension gets 20% tax relief automatically. Higher-rate taxpayers (40%) can claim back an additional 20% through their tax return.

Example: You earn £60,000. You put £5,000 into your pension via salary sacrifice.

Your taxable income drops to £55,000
You save £2,000 in tax (40% of £5,000)
You also save £600 in NI contributions (12% of £5,000)

Save £2,600 for every £5,000 pension contribution. True cost: £2,400.

Work Expenses

You can claim tax relief on things you buy for work:

Business mileage: 45p per mile for the first 10,000 miles (25p after that)
Working from home: £6 per week tax-free, no receipts needed
Professional subscriptions: If your job requires membership of a professional body
Tools and equipment: If you're a tradesperson and buy your own gear

Claim through your Personal Tax Account or Self Assessment if you use it.

When You Need to File a Tax Return

Most PAYE employees don't need to file a tax return. But you must if you:

Earn over £100,000
Have untaxed income over £1,000 (freelance work, rental income, dividends)
Are a company director
Get income from abroad
Want to claim tax relief on pension contributions or expenses

Self Assessment Deadlines

Paper return: 31 October
Online return: 31 January
Payment deadline: 31 January

Miss a deadline and face a £100 penalty, with more fines possible.

Common Tax Mistakes (And How to Avoid Them)

1. Ignoring Your Tax Code

Your employer just uses the code HMRC provides. If the code is wrong, you pay the wrong tax. Always check it each April when the new tax year begins.

2. Not Claiming Expenses

You're entitled to claim work-related expenses, so track and claim them to avoid missing out.

3. Emergency Tax

Start a new job without providing your P45? You'll be stuck on emergency tax—usually overpaying significantly. Give your employer your P45 the day you start.

4. Forgetting About Income

Have a side hustle, rental property, or dividends? Declare it. Penalties for not declaring are severe.

5. Missing Marriage Allowance

Couples can save £252 a year with Marriage Allowance. Apply online in minutes.

Student Loans: The Extra Tax Nobody Calls a Tax

If you have a student loan, you repay it via PAYE. It works like tax, though it's not technically tax.

Repayment Rates 2024-25

Plan 1: 9% on income over £22,015 Plan 2: 9% on income over £27,295 Plan 4 (Scotland): 9% on income over £31,395 Postgraduate: 6% on income over £21,000

Combined Effect

Earn £35,000 on Plan 2?

Income Tax: 20% on income above £12,570
National Insurance: 12% on income above £12,570
Student Loan: 9% on income above £27,295

Income between £27,295 and £35,000 is taxed at an effective 41%.

Tax Planning Strategies That Actually Work

1. Max Out Your Pension

Employer matching is free money—always put in enough to get the match. Higher-rate taxpayer? Consider throwing in more—you get 40% relief.

2. Use Your ISA Allowance

You can put £20,000 per year into an ISA (2024-25). Growth is tax-free. Income is tax-free. No capital gains tax when you sell.

3. Apply for Marriage Allowance

If you’re eligible, apply. That’s £252 a year, every year. Over time, that really adds up.

4. Keep Expense Records

Business mileage, work-from-home costs, professional subscriptions. Track them. Claim them.

5. Plan Around Tax Thresholds

Earning just over £100,000? Your personal allowance shrinks—£1 for every £2 over £100k, creating a 60% rate between £100k and £125,140.

Consider pension contributions to bring your income back under £100k. You'll save thousands.

Tools and Resources You'll Actually Use

HMRC Online Services

Personal Tax Account: Check your tax code, claim rebates, update details
Self Assessment portal: File returns online (way easier than paper)
HMRC app: Basic tax info on your phone

Our Calculator

Use our free tax calculator to see exactly what you'll pay Can you cut your tax in 60 seconds?. Plug in your salary, and we'll show you:

Income Tax breakdown
National Insurance
Student loan repayments
Take-home pay (monthly and annually)

Professional Advice

Consider getting help if you:

Earn over £100,000
Have multiple income sources
Are self-employed or a contractor
Receive significant benefits (company car, medical insurance)
Have international tax issues

A good accountant costs £500–£1,500 yearly. For complex tax, they save you more than they cost.

Special Situations

Starting Your First Job

Get your National Insurance number (if you don't have one)
Provide your P45 from any previous job (or complete the starter checklist)
Check your first payslip to make sure your tax code's correct
Sign up for workplace pension auto-enrollment (happens after 3 months)

Changing Jobs

Get your P45 from your old employer
Give it to your new employer on day one
Check your tax code transfers correctly
Consider what to do with old pension pots

Multiple Jobs

Your main job gets your personal allowance (usually). Your second job should be taxed at basic rate (BR code). Sometimes employers mess this up—both try to give you the allowance, you underpay tax, HMRC wants it back later.

Check your codes. Make sure only one job is using your allowance.

Earning Over £100,000

Your personal allowance reduces by £1 for every £2 you earn over £100k. At £125,140, it's gone entirely.

This creates an effective 60% tax rate on income between £100k-£125k:

40% income tax
20% effectively lost from your allowance

You must file a Self Assessment. Consider serious pension contributions to reduce your taxable income.

Getting Help When You Need It

Free Resources

HMRC helplines: For basic questions (expect to wait)
Citizens Advice: General financial guidance
Money Saving Expert: Independent tax tips and forums

Professional Help

Worth paying for if you:

Earn over £100k
Have multiple income streams
Are self-employed
Receive employment benefits
Deal with international tax issues

Good accountants pay for themselves. Bad advice costs you thousands.

What to Do Right Now

Imagine Sam, who followed this checklist and discovered he had been overpaying. By completing just four simple tasks, he managed to claim back £600. You too can see real results by taking these actionable steps.

This Week

Check your tax code on your latest payslip
Set up your HMRC Personal Tax Account
Review your pension contributions (are you getting the employer match?)
Use ourtax calculator) to see what you're actually paying

Next Month1. Apply for Marriage Allowance if you're eligible

Set up an ISA for tax-free savings
Start tracking work expenses
Review old payslips for errors

Every April

Check your tax code when the new tax year starts
Review your pension contributions
Consider filing a tax return if your circumstances changed
Stay updated on tax rate changes

Bottom Line

UK tax isn't complicated once you understand the basics. The system rewards people who pay attention. Check your tax code. Claim what you're entitled to. Use the allowances you've got.

Most people overpay because they don't bother learning the rules. Don't be most people.

Use our free tax calculator to see exactly what you're paying—and what you should be paying. Takes 30 seconds. Could save you hundreds.

Disclaimer: This guide covers general UK tax principles for 2024-25. Tax rules change, and individual circumstances vary. For personalized advice, consult a qualified tax professional.