When Do You Start Paying Taxes? A Complete Simple Guide

You start paying taxes in the UK once your taxable income exceeds the Personal Allowance of £12,570, or earlier if you have self-employment or other taxable income requiring registration.

According to HM Revenue & Customs, around 11.48 million people filed Self Assessment returns for the 2024/25 tax year, reflecting the growing number of individuals with side income or self-employment.

At the same time, the Personal Allowance has remained the same since 2021, meaning more people are being pulled into the tax system as incomes rise.

Understanding exactly when you need to start paying taxes – and how to go about it – is essential to staying compliant and avoiding unexpected bills.

Key points

• You start paying tax once you pass the Personal Allowance of £12,570 💰
  Once your income goes above this threshold, you pay tax on the amount above it. However, if you’re self-employed or earning side income, you may need to register earlier and manage your tax separately.
• Your employment type determines when and how you pay tax 🧑‍💼
  Employees pay automatically through PAYE in real time, while self-employed people pay later through Self Assessment, often in large lump sums that can include advance Payments on Account.
• Side income can trigger tax obligations faster than expected ⚠️
  Income from freelancing, property, or online platforms is taxable once it passes £1,000 annually. When combined with a salary, it can push you over the Personal Allowance even if each source feels small individually.
• Self-employed tax is based on profit but must be actively managed 📃
  You can reduce tax by claiming allowable expenses like travel, equipment, office costs, and professional services. Keeping accurate records is essential because HM Revenue & Customs can request evidence for up to five years after the filing deadline.
• Missing deadlines leads to fast-growing penalties 📅
  Late filing and late payment both trigger separate penalties plus daily interest, which can quickly escalate. Staying organised or using automated tools helps track income, set aside tax, and avoid unexpected bills.

When do self-employed people start paying Income Tax in the UK?

In the UK, you start paying Income Tax once your earnings go above a certain threshold, known as the Personal Allowance, which amounts to £12,570 per year.

This means:

• If you earn below £12,570, you usually don’t pay any Income Tax
• If you earn above £12,570, you pay tax on the amount over that threshold

So if you earn £15,000 in a year, the first £12,570 is tax-free, but the remaining £2,430 is taxable.

When do you start paying taxes if you’re employed?

If you’re employed, tax is usually taken automatically through PAYE (Pay As You Earn). You’ll start paying tax when your income exceeds £12,570 per year.

In practice, you don’t need to register or calculate anything yourself. Your employer deducts tax before you’re paid, and you can see all of this on your payslip.

Does everyone get the Personal Allowance?

Most people do, but there are a few exceptions:

• Some non-UK residents may not qualify
• If you earn over £100,000, your Personal Allowance gradually reduces. For every £2 you earn over £100,000, you lose £1 of your Personal Allowance until you run out at £125,140.

Certain factors can affect how much Personal Allowance you actually use. For example, the Marriage Allowance lets couples transfer £1,260 of allowance between partners, while taxable income like the State Pension can contribute to your total income and potentially reduce your allowance if it pushes you over £100,000.

For the majority of employees and sole traders, though, the standard allowance rules apply.

How much tax will you actually pay?

The UK uses tax bands, so there isn’t a flat rate.

The Basic Income Tax bands (England, Wales, Northern Ireland) are:

• 20%: on income between £12,571 and £50,270
• 40%: on income between £50,271 and £125,140
• 45%: on income above £125,140

In practice, it works like this:

If your total income is £60,000, your first £12,570 is tax-free (Personal Allowance). The next £37,700 is taxed at 20% (basic rate), which equals £7,540 in tax.

The remaining £9,730 is taxed at 40% (higher rate), which equals £3,892. So in total, you would owe £11,432 in Income Tax.

This tiered system means you only pay higher rates on the portion of your income within each band – not on your entire income.

Do you pay tax on side income?

Yes – even if it’s not your main job.

You may need to pay tax if you earn money from:

• Freelancing
• Selling products or services
• Creating content on online platforms
• Renting property

You can earn up to £1,000 per year without having to pay tax on it. After that, you must register for Self Assessment, and you may need to pay tax depending on your total income.

What about National Insurance?

Even if you don’t pay Income Tax yet, you might still need to pay National Insurance (NI):

• For employees, NI kicks in when you earn over £12,570 per year (aligned with the Income Tax threshold)
• For self-employed people, Class 4 NI applies once profits are above £12,570

This means you could start paying NI before or alongside Income Tax, depending on your situation.

When do you actually pay the tax?

You pay tax either in real time or after the tax year ends, depending on how you earn your income.

If you’re employed (PAYE)

If you’re an employee, tax is handled automatically through the PAYE (Pay As You Earn) system. You effectively pay tax in real time, every payday.

If your income changes, the amount adjusts automatically.

If you’re self-employed (Self Assessment)

If you’re self-employed, you pay tax after the tax year ends, not as you earn. This is where many people get caught off guard.

The UK tax year runs from 6 April to 5 April, and payments are made later through Self Assessment.

Key Self Assessment deadlines include:

• 31 January: Deadline for paying your full tax bill for the last year, plus your first Payment on Account
• 31 July: Deadline for the second Payment on Account (if applicable)

What are Payments on Account?

Payments on Account are advance payments towards your next tax bill, based on your previous year’s tax.

Each payment is usually 50% of your last tax bill, which means you could be paying tax for two years at once when you first start.

For example:

If your tax bill for the year is £2,000, your deadlines will look like this:

• 31 January: £2,000 (last year’s tax) + £1,000 (first payment on account)
• 31 July: £1,000 (second payment on account)

This timing difference is why many self-employed people feel like tax ‘hits all at once’.

How Making Tax Digital changes things

Making Tax Digital for Income Tax Self Assessment (MTD for ITSA) doesn’t change when you pay tax – but it significantly changes how you report and stay on top of it.

Instead of one annual submission, MTD introduces a year-round reporting system.

Under MTD for ITSA, you’ll need to:

• Keep digital records of income and expenses
• Submit quarterly updates to HMRC
• File a final declaration at the end of the tax year

In practice, this means that:

• You get a more up-to-date view of your tax position throughout the year
• Errors are spotted earlier, rather than at the end of the year
• There’s less last-minute pressure in January

However, it also means that tax admin becomes a continuous process, not a once-a-year task. It requires better organisation with regular record-keeping and submissions.

Without proper tracking, self-employed individuals often:

• Underestimate how much they owe
• Forget about payments on account
• Struggle to find the money when deadlines hit

With more frequent reporting, MTD is designed to reduce these surprises – but only if your records are accurate and up to date.

What expenses can you claim to reduce your tax?

If you’re self-employed, you only pay tax on profit, not your total income. That means claiming business expenses correctly can significantly reduce how much tax you owe.

Common allowable expenses include:

Partial use

If something is used for both personal and business purposes (like your phone or home internet), you can only claim the business portion. For example, if 60% of your phone use is for work, you can claim 60% of the bill.

That’s why, in order to claim expenses confidently, you should:

• Keep organised receipts
• Maintain clear records of transactions
• Separate business and personal spending where possible

Good record-keeping is essential because HMRC can ask for evidence for up to five years after the 31 January submission deadline for the relevant tax year.

What happens if you don’t pay tax on time?

Missing tax deadlines can quickly become expensive. HMRC applies penalties and interest depending on how late you are.

Penalties apply separately for late filing (not submitting your tax return on time) and late payment (not paying your tax bill on time).

Late filing penalties

If you miss the deadline for submitting your Self Assessment tax return:

• £100 fixed penalty: applies immediately after the deadline, even if no tax is due
• After 3 months: additional daily penalties of £10 per day (up to 90 days)
• After 6 months: further penalty of 5% of the tax due, or £300 (whichever is higher)
• After 12 months: another 5% of the tax due, or £300 (whichever is higher)

Even if your tax bill is zero, the initial £100 penalty still applies.

Late payment penalties and interest

If you don’t pay your tax bill on time:

• 30 days late: 5% of the unpaid tax is added
• 6 months late: another 5% charge may apply
• 12 months late: a further 5% charge may apply

In addition to penalties, interest is charged daily from the day after the payment deadline until the full amount is paid.

This means the longer you delay, the more your original bill increases even before penalties are fully applied.

What to do if you can’t pay on time

If you’re struggling to pay your tax bill, it’s better to act early. You can contact HMRC and try arranging a Time to Pay agreement. This allows you to spread payments over time.

Interest will apply on the outstanding amount, but setting up an agreement can help you avoid additional penalties.

Approval isn’t automatic, and you’ll typically need to show that you can afford the instalments and that you’re genuinely unable to pay in full at that time.

A simpler way to stay on top of tax from day one – for free

Knowing when you start paying tax is easy – staying on top of it once your income crosses the threshold is where it gets harder. This is where many individuals, especially self-employed workers and freelancers, run into problems: unexpected bills, unclear profit, and missed deadlines.

Instead of manually tracking income, expenses, and thresholds, ANNA helps you manage everything in the background so you always know where you stand with HMRC.

If you register with ANNA now, you’ll get your 2025/26 Self Assessment filed for free. Already went with another provider? ANNA will refund the filing fee when you transfer.

ANNA also offers:

• Real-time tax tracking: Your tax position is updated automatically as you earn, so you can see when you’re approaching key thresholds like the £12,570 Personal Allowance before it becomes a surprise.
• Automatic income and expense tracking: Every transaction is recorded and categorised in real time, helping you understand your true profit instead of estimating at the end of the year.
• Smart tax pots: A portion of your income can be automatically set aside for tax, so you’re prepared for Self Assessment bills and Payments on Account without last-minute stress.
• Self Assessment support built in: Instead of manually preparing your tax return, ANNA helps you stay organised throughout the year, so submission is straightforward when deadlines arrive.
• MTD compliance: As reporting becomes more frequent under MTD for Income Tax Self Assessment, ANNA keeps your records continuously updated and ready for quarterly submissions.
• Built-in UK business account: Income, spending, and tax planning all happen in one place, so you don’t need separate banking and accounting tools.
• 24/7 support when you need it: If anything is unclear, you can get help without navigating complex accounting systems or waiting for office hours.

If you want to meet your tax deadlines with ease and confidence, try ANNA today.