UK Tax Guide​ for 2026

Tax in the UK has a habit of feeling simple right up until the point it suddenly doesn’t. 

For a lot of people, it just happens in the background. You go to work, you get paid, tax is taken, and you trust that HMRC and payroll have got it right. But the moment something changes, a new job, a second income, a period out of work, a move abroad, claiming expenses, it can all start to feel much less straightforward. 

That’s where confusion usually creeps in. 

This guide is here to make things clearer. We’ll walk through the main parts of the UK tax system, explain where people most often get caught out, and show you where it’s worth taking a closer look. And if you get to the end and still feel unsure, that’s exactly the kind of thing RIFT helps people sort out every day. 

How does tax work in the UK?

In the UK, most people pay Income Tax and National Insurance on what they earn. If you’re employed, that’s usually handled through PAYE, which means your employer deducts tax before your wages hit your account. If you’ve got income that is not taxed that way, for example from self-employment, property, overseas income or certain investments, you may need to report it yourself through Self Assessment.  

That’s the broad shape of it. The reason it often feels complicated is that not everyone pays tax in the same way, not all income is treated the same, and HMRC relies on the information it holds about you being correct and up to date. When it isn’t, you can end up paying too much, too little, or being expected to do something you didn’t realise applied to you. 

What is a tax code, and why does it matter?

Your tax code tells your employer how much tax to take from your pay. It’s built mainly around your Personal Allowance, which is the amount you can usually earn before paying Income Tax. 

You’ll usually find your tax code on:

• your payslip 
• your P60 or P45 
• HMRC letters or your Personal Tax Account 
• Most tax codes are made up of numbers and a letter. 

The number part broadly reflects your tax-free allowance. A code like 1257L usually means you have the standard Personal Allowance of £12,570. The letter tells HMRC and your employer whether anything else affects your tax position. For most people, that letter is L, which usually means the standard allowance applies. The current Personal Allowance remains £12,570, and it reduces by £1 for every £2 of adjusted net income above £100,000 until it reaches zero at £125,140.  

 How is Income Tax worked out?

At its core, Income Tax is based on two things: how much you earn, and how much of that income sits above your Personal Allowance. 

For the current tax year, most people have a £12,570 Personal Allowance. For taxpayers in England, Wales and Northern Ireland, taxable income above that is usually charged at:

• 20% basic rate on the first £37,700 of taxable income above the allowance 
• 40% higher rate on taxable income from £37,701 to £125,140 
• 45% additional rate above £125,140  

Scotland has different tax bands and rates for earnings, so Scottish taxpayers need to check the Scottish thresholds separately.  

This is one of the areas people often misunderstand. Moving into a higher band does not mean all your income is taxed at that rate. Only the slice of income in that band is. 

What about National Insurance?

Alongside Income Tax, most employees also pay National Insurance contributions, usually through payroll. These contributions help build entitlement to things like the State Pension and some benefits. 

For most employees, this means Class 1 National Insurance. The rate you pay depends on your earnings and your National Insurance category. For the most common employee category, Category A, the employee main rate is currently 8% between the relevant thresholds, and 2% above the upper earnings limit.  

Your National Insurance category letter is usually shown on your payslip. The main categories include:

A: most employees  

B: married women and widows paying a reduced rate  

C: employees over State Pension age  

H: apprentices under 25  

J: employees who can defer because they are paying elsewhere  

M: employees under 21  

V: veterans in their first civilian job after leaving the armed forces  

Z: under-21s who can defer because they are paying elsewhere  

X: no National Insurance due  

It’s worth checking this occasionally. If your category is wrong, that can affect both what you pay now and what you build up for later. 

National Insurance Calculator

 What is PAYE?

PAYE, short for Pay As You Earn, is the system employers use to collect Income Tax and National Insurance from employees and send it to HMRC. 

In theory, it keeps things simple. In practice, it works best when your circumstances are stable and HMRC has the full picture. If you change jobs, take on a second role, stop working part-way through the year, or your tax code is wrong, PAYE can still deduct the wrong amount. 

That’s one of the biggest reasons people later discover they’ve overpaid tax. 

What is Self-Assessment, and do you need to file a tax return?

Self Assessment is the system HMRC uses when you need to report income yourself instead of having it taxed automatically through PAYE. 

You may need to file a tax return if you: 

• are self-employed and earn more than £1,000 before expenses 
• are a partner in a business partnership 
• have rental income 
• have foreign income 
• need to pay Capital Gains Tax 
• are repaying certain student or postgraduate loans through Self Assessment 
• need to pay the High Income Child Benefit Charge and are not already paying it through PAYE 
• are asked to file by HMRC  

You may also need one in a range of other situations, including some types of savings, investment or dividend income. 

The key point is that Self Assessment is often triggered by a change in circumstances. It might be obvious, like going self-employed, or it might creep up on you because your finances have become more complex. 

If HMRC tells you to file a return, don’t ignore it, even if you think they might be mistaken. 

I've just become self-employed. What do I need to do?

If you’ve started working for yourself and need to file a return, you normally need to tell HMRC by 5th October after the end of the tax year in which you started. 

Once registered, you’ll get a Unique Taxpayer Reference (UTR) and can file online. The deadline for online returns and tax payment is 31st January after the end of the tax year. Paper returns are due earlier, by 31st October.  

This is one of those situations where getting set up properly early saves a lot of stress later. 

How do self-assessment expenses work?

If you’re self-employed, HMRC is generally interested in your profits, not every pound coming in. That means allowable business costs can reduce the amount you pay tax on. 

That is where record-keeping becomes important. Invoices, receipts, mileage logs and bank records are not glamorous, but they are what make your tax return accurate and supportable. 

For employees claiming tax relief on work costs, HMRC says you can usually claim only if: 

• you paid the cost yourself 
• it was necessary for your job 
• your employer did not reimburse you  

The relief is based on the rate of tax you pay, not the full amount you spent.  

What are payments on account?

Payments on account are one of the parts of Self Assessment that catches people off guard. 

In simple terms, HMRC asks you to pay part of your next tax bill in advance, based on what you paid last year. 

Here’s how it works: 

• HMRC looks at your latest tax return and the tax due 
• it assumes your next year will be broadly similar 
• it splits that expected amount into two advance payments 
• the first is due by 31st January 
• the second is due by 31st July  

These payments usually apply if: 

• your last Self Assessment tax bill was more than £1,000, and 
• you paid less than 80% of the tax due outside Self Assessment, for example through your tax code  

This is where it can feel unfair. You can end up paying tax on money you haven’t even earned yet. 

The other issue is that these payments are based on estimates. If your income drops, you stop trading, or your costs increase, there’s a real chance you’ll have paid too much and need to claw some of it back. 

What happens if you leave a job?

When you leave a PAYE job, your employer should give you a P45. This shows: 

• your leaving date 
• your pay and tax so far that tax year 
• your National Insurance number 
• your tax code  

If you start another job, your new employer should use that P45 to work out the right tax to deduct. 

At the end of the tax year, if you were employed on 5th April, your employer must also give you a P60 by 31st May. This summarises your total pay and deductions for the whole year. If you have more than one job, you should get a separate P60 for each one.  

Leaving work part-way through the year is one of the classic reasons people end up due a refund. PAYE often assumes your level of earnings will continue for the full year. If that doesn’t happen, too much tax may have been taken. 

What is Marriage Allowance?

Marriage Allowance lets one spouse or civil partner transfer £1,260 of their Personal Allowance to the other. 

To qualify, one partner normally needs to earn less than the Personal Allowance and the receiving partner usually needs to be a basic-rate taxpayer. If eligible, the tax saving can be worth up to £252 for the year, and some claims can be backdated for earlier eligible years.  

It’s one of those allowances that can quietly save money, but people often miss it because they assume HMRC will tell them if it applies.

Do you pay tax on benefits? 

Some state benefits are taxable and some are not, which is one of the reasons this part of the system can feel confusing. 

The most common taxable benefits include:

• State Pension 
• Jobseeker’s Allowance 
• contribution-based Employment and Support Allowance 
• Carer’s Allowance 
• Incapacity Benefit from the 29th week 
• pensions paid by the Industrial Death Benefit scheme 
• Widowed Parent’s Allowance  

The most common tax-free benefits include: 

• Universal Credit 
• Housing Benefit 
• Income Support 
• Pension Credit 
• Personal Independence Payment 
• Disability Living Allowance 
• Guardian’s Allowance 
• Industrial Injuries Benefit 
• Maternity Allowance 
• Winter Fuel Payments 
• Christmas Bonus 
• free TV licence for over-75s 
• War Widow’s Pension 
• lump-sum bereavement payments  

Child Benefit is usually tax-free, although higher-income households may face the High Income Child Benefit Charge. 

I live abroad. Do I still have to pay UK tax? 

Sometimes yes. 

Whether you still pay UK tax when living abroad depends mainly on whether you count as UK resident for tax purposes. HMRC uses the Statutory Residence Test, which includes automatic UK tests, automatic overseas tests and the sufficient ties test. Things like how much time you spend in the UK, whether you still have a home here, and your links to the UK all matter.  

If you leave the UK and may not be coming back, or you work abroad full time for at least one full tax year, you may be able to use form P85 or the online P85 service to get your UK Income Tax right and potentially claim back tax from your UK employment. You do not need P85 if you are already filing a Self Assessment return for the year you leave. HMRC says you’ll normally need your P45 to make the claim.  

This is one of the areas where people often feel least sure of themselves, and understandably so. Overseas income, residency and double taxation can get technical quickly. But it’s also an area where overpaid tax can build up if no one has stopped to check the position properly. 

Paying UK tax living abroad

 

Am I owed a PAYE tax refund? 

Possibly, yes. 

People commonly end up overpaying tax when they: 

• stop working part-way through the year 
• switch to a lower-paid job 
• leave the UK 
• get put on the wrong tax code 
• pay for necessary work costs out of their own pocket  

HMRC does not always issue refunds automatically. It will not necessarily know what you’ve spent on things like tools, mileage, uniform upkeep, professional fees or other work-related costs. 

That is why so many refunds go unclaimed. 

And it’s also why this is one of RIFT’s strongest areas. On average, a yearly refund claimed through a specialist like RIFT is worth around £750. If it’s your first claim and you’re going back the full 4 years, that can add up to £3,000 or more. That is not small change, and it’s one of the clearest commercial reasons this page should not just explain tax, it should help people spot where money may be sitting unclaimed. 

How long does a tax refund take? 

There is no single timeline because it depends on the route and the complexity of the claim, but for many PAYE refund claims HMRC often takes around 8 to 12 weeks. Straightforward Self Assessment repayments can be faster once the return has been processed and bank details are correct.  

The biggest delays usually come from missing information, busy periods and claims that need additional checks. That’s why having the right records at the start makes such a difference. 

What are the key PAYE and Self Assessment dates? 

There are a few dates worth keeping in your head because they come up again and again: 

• 6th April: start of the tax year 
• 5th April: end of the tax year 
• 5th October: deadline to tell HMRC you need to register for Self Assessment 
• 31st October: paper tax return deadline 
• 31st January: online Self Assessment deadline and tax payment deadline 
• 31st July: second payment on account deadline 
• 31st May: deadline for employers to issue P60s to employees who were employed on 5th April  

These dates matter because HMRC is much easier to deal with when you’re ahead of the deadlines than when you’re trying to catch up. 

Important Tax Year Deadlines

 

What happens if you don’t file or pay on time? 

This is the part of tax where HMRC becomes much less patient. 

If you file your Self Assessment late, the penalty usually starts with an automatic £100 fine. After 3 months, daily penalties of £10 a day can apply, up to £900. After 6 months, there can be another charge of 5% of the tax due or £300, whichever is greater. After 12 months, there can be a further 5% or £300, again whichever is greater. Late payment penalties of 5% of unpaid tax can also apply at 30 days, 6 months and 12 months, and interest is charged on top.  

That’s why ignoring the problem is almost always the worst option. Even if you think HMRC has got it wrong, you’re usually better off dealing with it early and clearly. 

In more serious situations, deliberate tax evasion can lead to criminal prosecution. That’s not the same as making an honest mistake or filing late once, but it is part of the wider picture, and including it here matters because it shows the guide is not glossing over the serious end of the system. 

What can you claim without receipts? 

Ideally, you keep records of everything. That is always the safest approach. 

But in some cases, HMRC does allow claims to be based on standard rates or flat-rate expenses rather than individual receipts, depending on the type of claim. Mileage records can also be especially helpful where full receipts are not available. HMRC says you may need receipts or other evidence for employee tax relief claims, and if you estimate your costs you need to keep the figures accurate and update them if they change.  

This is particularly relevant for core RIFT customers like construction workers and military personnel, because work-related costs can build up quickly and the paperwork is not always perfect. The more organised your records are, the stronger your claim usually is, but missing a few receipts does not always mean the whole thing is dead in the water. 

How do you know how much tax you should pay? 

This is the question sitting underneath a lot of other questions. 

If you’re on PAYE, HMRC usually calculates your tax based on your tax code and the information your employer sends. If you’re self-employed, the final picture comes through your Self Assessment return. Either way, the basic sense-check is the same: 

• look at your tax code 
• understand your Personal Allowance 
• know which tax bands apply 
• check whether there are any other income sources, reliefs or benefits in play  

HMRC may also send a P800 if it believes you have paid too much or too little tax.  

This is one of the reasons people get stuck. They can see the tax coming out, but they don’t always know whether the number is actually right. 

Do HMRC know my savings? 

HMRC already receives some information from banks and building societies, and it also has powers to request further financial information when needed. If you have savings income, dividend income or other untaxed income, that can form part of the wider picture HMRC uses to work out whether you need to pay more tax or file a return.  

This is a small section, but it matters because people often assume savings sit quietly outside the rest of the tax system. They don’t always. 

How can you reduce your Income Tax legally? 

For most people, reducing tax is less about clever tricks and more about making sure you’re actually using the allowances and reliefs that already exist. 

That can include: 

• using your full Personal Allowance 
• checking whether Marriage Allowance applies 
• making the most of ISAs and savings allowances 
• claiming job-related tax reliefs where you’re eligible 
• checking whether the starting rate for savings helps in your situation  

For the current tax year, the starting rate for savings remains up to £5,000, and the dividend allowance remains £500, though whether those help depends on the rest of your income.  

For employees especially, one of the biggest missed opportunities is simply not claiming tax relief on costs they’ve had to cover themselves. 

What income is not taxable? 

A good starting point is your Personal Allowance, which is the amount most people can earn before paying Income Tax. 

Beyond that, there are several types of income that may be tax-free or covered by allowances, including: 

• ISA interest and gains 
• some state benefits 
• Lottery and Premium Bond winnings 
• the £1,000 trading allowance 
• the starting rate for savings in some cases  

The important thing to remember is that “tax-free” is not always absolute. A lot depends on the rest of your income and your circumstances. 

How much can you earn before paying tax? 

For most people, the answer is £12,570, because that is the standard Personal Allowance. 

If your adjusted net income goes above £100,000, that allowance starts reducing by £1 for every £2 over the limit, and it disappears entirely at £125,140. Some people can receive a larger tax-free amount because of things like Blind Person’s Allowance, which is currently £3,250.  

2026-27 Personal Allowance

Will I get a tax refund if I only worked 6 months? 

Potentially, yes. 

PAYE often assumes your current level of earnings will continue for the whole tax year. If you only worked for part of the year, that assumption can mean too much tax was taken while you were working. 

This is one of the more common refund situations, and one of the reasons part-year workers often find they’ve overpaid. 

Can I pay my child a salary in the UK? 

Potentially, yes, but it depends on their age and the type of work. 

Children can usually work part-time from 14, and in some local authority areas from 13. Full-time work usually can only start once they reach the minimum school leaving age. By 16, PAYE can come into play, and by 18, adult employment rules apply fully. There are also stricter rules for younger children working in areas like theatre, television and modelling, and local council rules may apply as well.  

This is definitely one of those areas where it’s best to check properly before acting. 

Not sure where you stand? 

That is exactly where most people start. 

Usually, people are not trying to do anything clever with tax. They’re just trying to work out whether what’s happening is normal, whether something has gone wrong, and whether they need to do anything about it. 

That’s why a page like this needs to be genuinely comprehensive. And it’s also why expert support matters when the answer is not obvious. 

If your tax code looks wrong, you’ve changed jobs, you’ve only worked part of the year, you’ve moved abroad, or you’ve been paying for work-related costs yourself, it’s worth checking your position properly. Sometimes HMRC expects something from you. Sometimes you’re owed money back and no one’s told you. Sometimes it’s both.