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Session 7: Income tax and National Insurance contributions
Learning outcomes
Session learning outcomes
By completing this session, you will be able to describe:
Income tax.
National Insurance (NI) contributions.
Glossary
7.1 What is HMRC?
Most adults in the UK are familiar with HMRC (His Majesty’s Revenue and Customs).
HMRC is responsible for collecting taxes and National Insurance contributions.
For a detailed description of what HMRC does, go to their About us page..
7.2 Income tax
Income tax is the tax you pay on your income. You may obtain your income from your employment, from letting a property or from self-employment.
If someone earns £1,000 from self-employment or earns at least £2,500 income that is not taxed, then they will need to submit a Self Assessment form.
If you earn less than £100,001, then you get a Personal Allowance, which is the amount of income on which you do not have to pay income tax. Presently, the personal allowance is £12,570.
You may also get a Personal Savings Allowance on your savings. Remember, you do not have to pay tax on ISAs.
The table below (HMRC, 2025) shows tax rates for different levels of income.
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal allowance | up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
For an example of how tax is calculated with a personal allowance, visit Tax on savings interest: How much tax you pay by HMRC.
7.3 National Insurance contributions
You pay National Insurance if you are 16 years or older and earn above a threshold level of income.
The threshold is presently:
Earning £242 per week if you are employed.
Or
Making a profit of more than £12,570 a year if you are self-employed.
By making National Insurance contributions you qualify for benefits such as the national state pension when you retire.
Starting work
Watch this video by HMRC that explains your National Insurance number, which you receive just after your 16th birthday.
It also explains the benefits that you are entitled to when you make your National Insurance contributions.
Use the box below to make notes (or write it down in your notepad).
Moving on
References
HMRC (2025) Income Tax: introduction. Available at: https://www.gov.uk/income-tax/how-you-pay-income-tax (Accessed 16 July 2025).
HMRC (2025) Income Tax rates and Personal Allowances. Available at: https://www.gov.uk/income-tax-rates (Accessed 16 July 2025).
HMRC (2025) Tax on savings interest. Available at: https://www.gov.uk/apply-tax-free-interest-on-savings (Accessed 16 July 2025).
Acknowledgements
Grateful acknowledgement is made to the following sources:
Every effort has been made to contact copyright holders. If any have been inadvertently overlooked the publishers will be pleased to make the necessary arrangements at the first opportunity.
Important: *** against any of the acknowledgements below means that the wording has been dictated by the rights holder/publisher, and cannot be changed.
Images:
565773: Image: Tax folder and calculator: Red Vector / Shutterstock
565777: Image: Dirty money: Leremy / Shutterstock
565782: Image: Woman with tax clipboard: Red Vector / Shutterstock
565896: Image: Paper plane: Wirestock Creators / Shutterstock
Weblinks:
About us - HM Revenue & Customs - GOV.UK
Income Tax: introduction: How you pay Income Tax - GOV.UK
Income Tax rates and Personal Allowances : Current rates and allowances - GOV.UK
Tax on savings interest: How much tax you pay - GOV.UK