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If you have a salaried job, there’s a good chance you already pay income tax and National Insurance through the pay-as-you-earn (PAYE) scheme.
Thanks to PAYE, employed workers receive their wages after tax has been paid. This means that by the time your hard-earned wages hit your bank account, income tax and National Insurance have already been taken care of.
If you’re a self-employed worker – or if you make money from rental income, investments, or overseas – you’ll probably have to handle your own tax payments through the Self Assessment scheme.
Here, we explain how income tax and National Insurance work, who has to pay these taxes, how to make a payment, and how you may be able to pay less tax.
How is income tax collected?
In the UK tax is paid to HM Revenue & Customs (HMRC) on money you earn from employment, In the UK, income tax is paid to HM Revenue & Customs (HMRC) on money you earn from employment, whether it’s through a company or if you’re self-employed.
You may also have to pay income tax on:
- income from pensions
- some state benefits
- interest on savings (unless held in a tax-free wrapper, like an ISA)
- income from shares
- rental income
- income from a trust
- benefits you get from your job
If you pay tax through the PAYE system, income tax and National Insurance contributions will be taken from your wages before you receive them. This is called being taxed ‘at source’.
In this case, HMRC will issue your employer with a tax code, which says how much tax to take from your wages. The amount you pay will ultimately depend on how much you earn. Private pensions also use a tax code to work out how much tax to deduct from your payments.
If you are self-employed, you will need to file an annual Self Assessment tax return, which you can do online or through the post. There are set deadlines for these, and if you file late you may face a penalty. Your tax bill will then be calculated based on the information in your return, and it’ll be up to you to settle this bill with HMRC.
» MORE: What you need to know about income tax
How are National Insurance contributions collected?
Alongside income tax, most workers in the UK also have to pay National Insurance Contributions (NICs).
As with income tax, the way you pay NICs is different if you’re an employee or if you’re self-employed.
For employees, National Insurance payments are deducted at source (just like income tax). For the self-employed, National Insurance Contributions are generally paid through Self Assessment.
Some self-employed workers may also choose to make voluntary National Insurance Contributions. You might do this if you’re self-employed and had profits of less than £6,725 in a year.
By making voluntary National Insurance Contributions you can avoid gaps in your National Insurance record. Having gaps may affect the benefits you’re entitled to, like the state pension.
If you want to make a voluntary National Insurance payment or learn more about your National Insurance record, visit the Gov.uk website.
Who has to pay tax?
Most workers have to pay income tax, but the amount paid depends on your circumstances. National Insurance is also due on wages and self-employed profits, although this is separate to income tax.
The majority of people benefit from the personal allowance, which is the amount of money you can earn each year before you start paying tax. For the current tax year, which runs from 6 April 2025 to 5 April 2026, the personal allowance is £12,570. The personal allowance has historically risen with inflation, although it is currently frozen and is likely to remain so until the 2027/2028 tax year.
Calculate if you need to be paying tax
In order to work out if you need to be paying tax, the first thing to do is add up all of your taxable income, including your wages, pensions and interest from savings.
Next, calculate your tax-free allowances (such as the personal allowance) and take this away from your taxable income. If there is nothing left at that point, you shouldn’t be paying income tax or National Insurance (although you may still be able to make a voluntary payment).
How much do you need to earn to pay tax?
The amount of tax you pay depends on your income, whether you’re self-employed and where you live in the UK.
As of April 2025, workers in England, Wales and Northern Ireland pay the following income tax rates:
- Basic rate: 20% on earnings from £12,570 to £50,270
- Higher-rate: 40% on earnings from £50,271 to £125,139
- Additional rate: 45% on earnings over £125,140
Scotland, meanwhile, uses different income tax bands. As of April 2025, workers in Scotland have to pay the following rates of income tax:
- Starter rate: 19% on earnings from £12,571 to £15,397
- Basic rate: 20% on earnings from £15,398 to £27,491
- Intermediate rate: 21% on earnings from £27,492 to £43,662
- Higher rate: 42% on earnings from £43,663 to £75,000
- Advanced rate: 45% on earnings from £75,001 to £125,140
- Top rate: 48% on earnings over £125,140
Most UK employees also pay National Insurance based on their weekly earnings.
As of April 2025, for most UK employees, National Insurance is charged at the following rates:
- 0% on earnings up to £242 per week
- 8% on earnings from £242.01 to £967 per week
- 2% on earnings over £967 per week
For self-employed workers with profits of less than £6,725 a year, National Insurance isn’t mandatory (although voluntary payments may be needed to protect your National Insurance record).
As of April 2025, for self-employed workers earning over £6,725 per year, National Insurance is set at the following rates:
- 6% on profits of £12,570 up to £50,270
- 2% on profits over £50,270
For most self-employed workers, National Insurance and income tax payments are handled through the Self-Assessment system.
If you earn £1,000 or more from self-employed work or a side-hustle, you’ll need to fill out a Self-Assessment tax return – even if you make most of your money from a salaried day job.
If you have any other sources of untaxed income (for example, if you rent out a property or earn an income from shares), you will also need to declare this to HMRC and will usually need to complete a tax return.
How can you pay a tax bill?
Your tax is automatically deducted at source if you are in the PAYE system. At the end of the tax year, you’ll be given a P60 form to tell you how much you have paid.
If you need to make an additional tax payment, or if you pay tax through Self-Assessment, you can do this online via the Government website.
If you don’t want to pay online it’s also possible to pay a tax bill by:
- sending a cheque in the post
- setting up a direct debit
- paying at your bank branch
- paying on the phone
- amending your tax code
» MORE: Everything you need to know about filing your taxes
How to pay less tax
While there is no way to avoid paying tax, there are legal ways you might be able to reduce your tax bill. These include taking advantage of tax breaks that apply to you, such as the marriage tax allowance, which allows some people to transfer £1,260 of their personal allowance to their spouse or civil partner if they earn more and their partner’s income is below their personal allowance. You can also take advantage of tax-efficient savings plans, such as ISAs and pensions, to shelter more of your hard-earned money from tax.
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