What income is taxable?
This page deals only with income that you get from an employer. We look at whether or not the different parts of your employment package are taxable. Income does not have to be in monetary form – it can be payment in kind.
You do not have to pay tax on all your income. In tax terms, some income is called ‘taxable’ – you have to pay tax on it, and some is ‘non taxable’, ‘not taxable’, ‘exempt’ or ‘tax free’ – you do not have to pay tax on it.
If you want to know whether different types of income are taxable or not, we suggest you visit our page with more general information in the ‘tax basics section’ of our website. If you want to know whether different state benefits and tax credits are taxable or not, we suggest you visit our section on ‘tax credits and benefits’.
This page is for you if you are an employee with a UK employment and you are UK resident for tax purposes. If this is not the case, you may need to seek advice from a tax adviser. You can find a paid tax adviser using the search tool on the Chartered Institute of Taxation's website.
The following list includes income that is normally taxable.
- Wages and salaries – this includes holiday pay. It does not matter how your employer pays you, providing that they operate Pay As You Earn (PAYE) correctly – cheque, cash in hand or bank transfer are all possible. It does not matter how frequently you are paid – it can be monthly, weekly, daily, or at irregular intervals. It does not matter whether you receive the same amount each payday or a variable amount, dependent on the number of hours you work. Your employer must give you a payslip each payday, either electronically or in hard copy.
- Benefits in kind, which might also be called ‘perks’ of your job. This includes things like company cars and private medical insurance. Until 6 April 2016 the tax treatment of benefits in kind sometimes depended on whether you earned £8,500 a year or more.
- Bonuses, commission and tips – if your employer pays you a bonus or commission, you must pay tax on it. Usually, your employer operates PAYE, just like on your wages or salary. If you receive tips from customers, you have to pay income tax on them, but you may not have to may National Insurance contributions (NIC). The way in which you work out your tax on tips depends on who the tips are given to and who decides how to share the tips. There is more information on the tax and NIC position of tips on the GOV.UK website.
- Backdated pay awards
- Expenses not totally and necessarily incurred to do the job paid by the claimant's employer including:
- Travelling expenses between the claimant's home and place of employment
- Expenses incurred for the care of a member of the claimant's family, such as child minding costs
- Vouchers that can be exchanged for cash, goods or services
- Payment in lieu of remuneration, such as a payment made by a liquidator when a company has been wound up and employees are owed earnings
- Protective awards which may be ordered by an Industrial Tribunal if an employer has not given a trade union the statutory notice of redundancies, or a payment which may be made to an ex-employee from the Redundancy Funds if an employer goes into liquidation
- Redundancy/leaving payments over £30,000
- Retainers – a retainer is a payment made for a period when no actual work is carried out, such as payment made to employees of the school meals service during school holidays
- Statutory employment benefits, such as statutory sick pay, statutory maternity pay and statutory paternity pay.
The following list includes income that is normally tax free.
- Redundancy payments or compensation for loss of employment up to £30,000, subject to certain rules. This is a complex area. You can find more information on our redundancy payments page
- Employer sponsored courses – you can find out more about this on our Tax Guide for Students website
- Long service awards where the gift meets certain criteria – the gift must be a non-cash award; the award must mark at least 20 years of service by the employee; the employer must not have made another long-service award to the same employee within the previous 10 years; the award must be worth no more than £50 per year of service
- Reimbursement of expenses, wholly and necessarily for your employment, that you have personally incurred in the first instance.
If your employment package contains types of income that we do not cover in the ‘employed section’, then your tax affairs could be quite complicated. You may need to contact HMRC or get advice from a tax adviser. You can find a paid tax adviser using the search tool on the Chartered Institute of Taxation's website.
For more information on various different types of non-employment related taxable and tax free income, you may find these sections of our website helpful:
- Tax basics – what income is taxable?
- Self-employment – how do I work out my taxable profits?
- Armed forces and tax – allowances and expenses paid to you
- Pensioners – what income is taxable?
- Tax credits and benefits – state benefits
There is more information on the taxation of savings income in the ‘Other tax issues section’ of this website.