At What Income Do I Have to Start Paying Tax or File a Return?

Alan Bermingham

10 Years of Expertise in Fintech Innovation

10 min read

For the 2023/24 tax year, most people can earn up to £12,570 before paying any income tax, known as the Personal Allowance, with 20% charged on earnings between £12,571 and £50,270, 40% up to £150,000, and 45% above that in England, Wales and Northern Ireland; Scotland applies its own devolved rates and bands. Filing a Self Assessment return is required in specific circumstances regardless of income level: self-employment even below £12,570, self-employed earnings over £1,000, untaxed income above £2,500, savings or investment income of £10,000 or more, and the High Income Child Benefit Charge where a partner earns over £60,000. The Trading Allowance lets self-employed people earn up to £1,000 without registering, but earnings above this require registration for Self Assessment and payment of tax and National Insurance on profits over £12,570. Missing a required filing brings an immediate £100 penalty, even where no tax is ultimately owed, with charges increasing the longer the delay continues.

All the Details, Explained

Income tax is a direct tax on personal income from various sources, including employment, pensions, property letting, savings, and investments. It forms a crucial part of the UK tax system, ensuring that individuals and businesses contribute to public services and infrastructure.

Typically, income tax is deducted automatically from wages and pensions through the PAYE (Pay As You Earn) system. However, if you have additional income sources, such as rental income or freelance earnings, you must report this through a Self Assessment tax return. This process involves calculating your total taxable income, determining how much tax you owe, and submitting the necessary paperwork to HMRC.

If you're unsure how to report your income or complete your Self Assessment, we can help you navigate the process and ensure everything is submitted accurately and on time.

Income Tax Rates and Bands

Income tax rates and bands are updated annually, and for the 2024-25 tax year, they vary slightly across the UK. In England, Wales, and Northern Ireland, the income tax rates and bands are as follows:

Basic rate: 20% on taxable income up to £50,000
Higher rate: 40% on taxable income between £50,001 and £150,000
Additional rate: 45% on taxable income above £150,000

Scotland has its own set of income tax rates and bands, reflecting its devolved tax powers. These rates are used to calculate the amount of tax owed on your taxable income, with different rates applying to different levels of income. For example, if your total taxable income is £60,000, you would pay 20% on the first £50,000 and 40% on the remaining £10,000. This progressive system ensures that those with higher incomes pay a larger proportion of their earnings in tax.

Do I need to pay tax on all my income?

Nobody likes paying tax, but most of us have to do it at some point. The good news is that you don't have to pay tax on every pound you earn in the UK thanks to the tax-free allowances available.

The tax system provides everyone with a tax-free amount each year, meaning you can earn a certain amount before HMRC requires their share. This system helps protect lower earners while ensuring those with higher incomes contribute more.

Your specific tax obligations depend on several factors including how much you earn, what types of income you have, and your personal circumstances such as marriage status or disability. It is also vital to verify that your employer is applying the normal UK tax code to your monthly payroll, as any discrepancies here could lead to you paying the wrong amount of tax without realising it until the year ends.

If you receive a company vehicle, you should also be aware of how the Benefit in Kind tax for EVs works, as this often affects your total taxable income and needs to be accounted for in your annual calculations.

At what income do I have to start paying tax or file a return?

For the 2023/24 tax year, most people can earn up to £12,570 before paying any income tax. This is called your Personal Allowance and forms the foundation of the UK tax system.

Once your earnings exceed this threshold, you'll pay tax only on the amount above £12,570. The UK uses a progressive tiered system where different portions of your income are taxed at different rates rather than your entire income.

For example, you'll pay 20% tax on earnings between £12,571 and £50,270, then 40% on income above £50,270, and 45% on anything over £150,000. This graduated approach ensures tax burdens increase proportionally with income.

These thresholds work differently in Scotland, where there are more tax bands with slightly different rates to reflect Scotland's devolved tax powers.

Do I need to file a tax return even if I'm below the tax threshold?

Not everyone needs to file a tax return, particularly if you're employed and all your tax is handled through PAYE. In such cases, HMRC automatically collects the correct amount through your employer.

However, you'll need to file a tax return if you're self-employed (even if you earned less than £12,570), earned more than £1,000 from self-employment, or have untaxed income over £2,500 from sources like property rental. Additionally, filing is required if your savings or investment income was £10,000 or more.

You must also file if you need to pay the High Income Child Benefit Charge, which applies when you or your partner earn over £60,000. HMRC might request a return for other specific reasons too, and if they do, you must complete it regardless of whether you owe tax.

You should also be mindful of your broader financial strategy, as those investing in high-growth companies should familiarise themselves with the EIS limits and tax benefits which are designed to provide significant relief for eligible taxpayers.

woman leaning on wall checking her phone

How does self-employment change my self assessment tax return situation?

Self-employed individuals operate under different rules than employees. You can earn up to £1,000 from self-employment without telling HMRC thanks to the Trading Allowance, which simplifies matters for those with minimal self-employment income.

If you earn more than £1,000, you'll need to register for Self Assessment and file a tax return. You'll then pay tax on profits above your Personal Allowance, currently £12,570, following the same tax bands as employed individuals.

Remember that you'll also need to pay National Insurance contributions if your profits exceed £12,570 per year. From personal experience, keeping detailed records of all business expenses throughout the year makes completing your tax return much less stressful when the deadline approaches, as does understanding the support for injured self-employed workers if your ability to earn is ever impacted by illness.

It is also crucial to remember that you lose the safety net of statutory leave when working for yourself, making it essential to understand your options for sick pay when self-employed to maintain your household finances during any period of ill health.

When might I need to pay tax despite being below the standard threshold?

Sometimes you might need to pay tax even if you earn less than the standard £12,570 threshold. This could happen if you have a reduced Personal Allowance, which occurs gradually when you earn over £100,000.

You might also need to pay National Insurance contributions, which start at lower income levels than income tax. Other situations include receiving taxable benefits, having tax due from previous years, or claiming certain tax reliefs that affect your allowances.

The rules can be particularly confusing when your income fluctuates or you have several different income sources. In such cases, seeking professional advice can help you clarify your position and avoid unexpected tax bills, such as ensuring you properly track any credit on account that may have arisen from previous overpayments.

You should remain aware that these thresholds are currently subject to a tax threshold freeze that effectively drags more taxpayers into higher brackets over time, meaning you must monitor your total income carefully each year.

How can I check if I need to pay tax?

HMRC provides several online tools to help you work out your tax position. Their tax checker can tell you whether you need to file a return based on your specific circumstances and income sources.

If your situation is straightforward with a single employer, HMRC typically handles most tax through the PAYE system automatically. However, if you have other income or special circumstances, you might need to take additional action to ensure compliance.

When in doubt about your tax obligations, it's always better to check with HMRC directly than risk penalties for missing filing requirements. A quick phone call can often clarify your situation and provide peace of mind. As your income streams grow and diversify, securing income protection insurance serves as a critical buffer, ensuring your business cash flow remains resilient even if an unforeseen injury or illness prevents you from servicing your clients.

What happens if I don't file a return when I should?

Missing tax return deadlines can result in significant financial penalties. HMRC charges automatic penalties starting at £100, even if you don't actually owe any tax, which can catch many people by surprise.

These penalties increase the longer you delay filing, potentially reaching thousands of pounds for very late returns. Additionally, interest charges accrue on any unpaid tax, further increasing the financial burden of non-compliance.

If you're worried you might have missed something, it's worth addressing the situation sooner rather than later. HMRC can be reasonable about genuine mistakes if you come forward voluntarily before they contact you.

Making tax simpler with the right tools

Understanding tax thresholds and filing requirements doesn't have to be overwhelming. The right support makes managing your tax affairs much more straightforward and less time-consuming.

Pie is the UK's first personal tax app designed specifically for working individuals. It helps simplify tax management with integrated bookkeeping, real-time tax calculations, and expert advice available when you need guidance on complex matters.

Unlike traditional tax solutions, Pie offers a complete package that makes self assessment straightforward, even for those new to managing their own taxes. This can be particularly valuable as your income sources diversify.

Final thoughts on tax thresholds

Tax rules evolve every year, so it's smart to review the latest thresholds and allowances each April when the new tax year begins. Even small updates can impact your tax position and filing responsibilities.

While most people begin paying income tax after earning £12,570, your filing obligations depend on your personal financial circumstances—not just one threshold. Life changes like starting self-employment or earning rental income can shift your tax duties significantly.

Life changes like starting self-employment or earning rental income can shift your tax duties significantly. It is also important to remember that additional reliefs are available for specific circumstances, so if you are eligible for the Blind Person's Allowance, you should ensure this is registered with HMRC to increase your tax-free threshold and reduce your overall burden.

That’s why tools like Pie tax exist. As the UK’s first personal tax app, Pie tax helps you stay compliant with real-time tax updates, smart bookkeeping, and expert insights tailored to your unique situation.

With the right support, staying tax-smart becomes second nature keeping you confident, compliant, and in control. This proactive approach includes performing routine checks periodically to confirm you are on the right tax code so that you never overpay or underpay your primary employment tax liabilities throughout the changing financial year.

Quick and Easy Guide to File a Self Assessment

Follow these steps to file your return through Pie

Step 1

Start by launching the Pie Tax App on your device. On your home screen, look for the ‘Tax Overview’ option and tap on it. This section will provide you with a summary of your tax return progress.