The UK Tax System

How does the UK tax system work? 

The UK tax system is how the government raises money to fund public services and other government spending. Taxes can apply to income, spending, company profits, property, investments and other economic activity. 

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Most UK taxes are administered by HM Revenue & Customs (HMRC). 

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If you are employed, your employer normally uses PAYE — Pay As You Earn — to deduct Income Tax and National Insurance from your pay before you receive it. Your payroll system uses information such as your earnings and tax code to calculate the deductions. 

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If you are self-employed, or receive certain other types of income, you may need to report your income to HMRC through Self Assessment instead. 

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The UK tax year runs from 6 April to 5 April the following year. Tax rates, allowances and thresholds can change between tax years, so it is important to check which year a figure applies to. (GOV.UK) 

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Does everyone in the UK follow the same Income Tax rules? 

Not completely. Scotland has different Income Tax bands and rates for earnings. For 2026–27, Wales uses the same main Income Tax rates and bands as England and Northern Ireland. (GOV.UK) 

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Why this matters to you 

When you start working, you may encounter: 

• PAYE 

• a tax code 

• National Insurance 

• payslips 

• tax refunds 

• Self Assessment 

 

Key takeaway 

You usually do not need to calculate every tax yourself, but understanding the system helps you check what is being deducted and why.