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What counts as 'other income'?

Other income that HMRC may be able to tax through your tax code includes:

• some income from property such as rental income
• untaxed bank or building society interest (the first 20 per cent is usually deducted before you receive payment but you'll owe a further 20 per cent if you pay higher rate tax and a further amount if you pay additional rate tax – read the section ‘If your income is above £150,000’)
• dividend income if you pay higher or additional rate tax (10 per cent is deducted before payment but you'll owe a further 22.5 per cent if you pay higher rate tax and a further amount if you pay additional rate tax)
• income from casual earnings, eg tips or commission

If you have other income that is not shown above, please contact HMRC for advice.

• Contact HMRC Opens new window

How HMRC deals with other income in your tax code

Income Tax rates and allowances

Check up-to-date figures for personal allowances from HM Revenue & Customs

• Income Tax rates and allowances Opens new window

HMRC adds up all your untaxed income - your other income as described above plus the value of any taxable company benefits or state benefits that you get - and takes it away as 'deductions' from the total value of your allowances and reliefs. The amount you're left with is the tax-free income you receive in the current year.

Example

You are entitled to the basic Personal Allowance of £8,105 (the amount for the 2012-13 tax year) and you have untaxed building society interest of £500 and rental income of £1,500:

• your total allowances and reliefs are £8,105 - your Personal Allowance
• your total 'deductions' are £2,000 made up of £500 plus £1,500
• your total tax-free amount is £6,105 which is £8,105 less £2,000

So, you have tax-free income of £6,105. This is shown in your tax code as 610L.

HMRC usually sends you a 'PAYE Coding Notice' that explains exactly how they have dealt with your untaxed income in your tax code.

• Find out more about tax codes

Other income - entries on your PAYE Coding Notice

Your PAYE Coding Notice is usually sent to you before the start of each tax year. It may also be sent to you at other times if something has changed - for example, if you've started receiving a new source of income or a new company benefit, or if your entitlement to age-related or other allowances has changed. Entries it might include for other income to be taxed through PAYE are listed below.

Property income

Any rental income (less expenses) not covered by the Rent a Room scheme is taxable, but you receive it without tax taken off so it is shown here.

Interest without tax taken off

HMRC's estimate of untaxed interest they expect you to receive is shown here to make sure you pay tax on this income.

Savings income taxable at 40 per cent and 50 per cent

Savings income is taxed at 20 per cent before you get it and dividends (income from shares) at 10 per cent.

If you're a higher rate tax payer you will owe the difference between 20 per cent and 40 per cent on savings income, and between 10 per cent and 32.5 per cent on dividend income.

If you are an additional rate tax payer you will owe the difference between 20 per cent and 50 per cent on savings income, and between 10 per cent and 42.5 per cent on dividend income.

The amount shown on your PAYE Coding Notice under this heading has the effect of collecting the difference in all cases.

Other earnings/other income (not earnings)

HMRC's estimate of other earnings/income you are expected to receive is included here so that they collect the right amount of tax due.

Commission

HMRC's estimate of the amount of commission you'll earn appears here so that you can pay tax on it.

Tips

HMRC's estimate of the amount they think you will earn in tips this year is shown here to take care of the tax due.

Limits on including other income in your tax code

If you're an employee or receive a company or personal pension you can receive up to £2,500 extra income in a year and still pay tax on it through your tax code. For amounts greater than £2,500 you'll have to complete a tax return and pay tax through Self Assessment.

If you don't want to pay tax on your other income through your tax code you can ask HMRC to stop collecting it this way and pay through Self Assessment instead.

For more information on the different ways of paying tax on your other income follow the link below.

• More information on ways you pay Income Tax

If your other income changes significantly

If there is a significant change in your other income you should contact HMRC right away so that they can work out whether you need to pay extra or less tax.

By contacting HMRC early you can avoid paying too much tax or owing tax at the end of the year.

• Reporting changes that might affect your tax

If HMRC's estimate is wrong

If at the end of the tax year it turns out that the amount of other income you received is greater than estimated, HMRC will ask you to pay tax on the difference. If it's less, you'll get a refund.

• Find out more about tax refunds

• What to do if your tax code is wrong

If your income is above £150,000

For 2010-11 your tax code did not take into account the new 50 per cent tax rate (and this will not have been reflected on your PAYE Coding Notice). This means that if you had any ‘reliefs and adjustments’ (for example, if HMRC needs to take account of savings income taxable at 50 per cent) your tax deductions may not have been accurate.

HMRC will work out how much tax you are actually due to pay when you send in your 2010-11 Self Assessment tax return. This may mean you’ll owe some extra tax.

Your 2011-12 tax code takes into account the 50 per cent tax rate and any ‘reliefs and adjustments’ to collect the right amount of tax.

If you don’t normally complete a Self Assessment tax return, and you become aware during the tax year that you need to complete one, follow the link below to register for Self Assessment.

• Registering for Self Assessment to get a tax return

More useful links

• Understanding your PAYE Coding Notice

• How you pay tax on savings income

• How you pay tax on UK dividends

• Getting tax-free interest on savings or claiming tax back

• How you pay tax on rental income - an overview