Personal income tax
Personal income tax is the UK tax on money you earn as an individual. It can apply to wages, profits from self‑employment, pensions, rental income, interest and dividends. Tax is collected either automatically through PAYE, or by filing a Self Assessment return when you have untaxed or more complex income.
For small business owners, the tax is based on profit, not turnover. Sole traders and partners pay it on their business profits. If you run a limited company, the company pays Corporation Tax on its own profits, and you personally pay income tax on money you take out as salary or dividends. Your residency and where income arises can affect what is taxed in the UK. Tax‑free allowances and reliefs may reduce the bill.
Keep records that match how you’re taxed
Track business income and costs separately from personal spending. Clear records make Self Assessment or PAYE checks easier and help you claim allowable expenses.
Common cases and how tax is collected:
- Employees: Your employer usually deducts tax through PAYE; check your payslips and tax code.
- Self‑employed (sole trader or partner): You pay tax on taxable profit via Self Assessment; set aside funds during the year.
- Company owners: Salary is processed through PAYE; dividends are reported on your personal return and are taxed differently from salary.
- Property income: Tax is on rental profit after allowable costs; report it in Self Assessment.
- Savings and investments: Interest and dividends may need reporting; treatment can differ from earnings.
- Cross‑border income: UK residents can be taxed on worldwide income; non‑residents are usually taxed only on UK income, with possible relief to avoid double taxation.
