Archive Website of the UK government

How do I know if I should be paying tax?

HM Revenue & Customs (HMRC) may have already contacted you to help you work out if you should be paying tax at State Pension age. You may also receive a P161 Age-related Personal Allowance form if you're approaching age 65. It's important that you fill this in so that you get any age-related allowances. If you're within a month of reaching State Pension age and haven't heard from HMRC please download the form below or contact HMRC to ask for the form.

• Form P161 Age-related Personal Allowance Opens new window

• Contact HMRC - Income Tax enquiries for individuals, pensioners and employees Opens new window

Working out if you should be paying tax

To work out if you are a taxpayer follow these three steps (these are covered in more detail below):

If your taxable income is more than your tax-free allowances, you'll have to pay tax and must contact HMRC. If your tax-free allowances are the same as or more than your taxable income, no action is necessary. If you think that you shouldn't be paying tax but are, you'll be able to claim a refund.

Step one - add up your taxable income

Some income is taxable and some is non-taxable. You compare only your taxable income with your tax-free allowances in a tax year (6 April to 5 April) to see if you're a taxpayer.

We've included the most common types of taxable and non-taxable income below. However, please also refer to the full list of taxable and non-taxable income by following the link at the end of this section.

Taxable income

Your taxable income includes:

If you're married or in a civil partnership and have income from savings, investments or property held in joint names you're usually treated as getting half the income each. This means you may only have to pay tax on your half of the joint income. If you're not married or you're not in a civil partnership count only your share of joint income.

If you're not married or you're not in a civil partnership count only your share of joint income.

Non-taxable income

Non-taxable income includes:

• Taxable and non-taxable income at a glance (money, tax and benefits section)

Step two – add up your tax-free allowances

Your tax-free allowances are the amount of income you can get without paying tax. They include the Personal Allowance and the Blind Person's Allowance.

Personal Allowance

Everybody gets the basic Personal Allowance and if you're 65 or older and your taxable income is below certain levels the rate increases.

Personal Allowance rates 2012-13

The age-related allowances are reduced by half the amount (£1 for every £2) your taxable income is over your income limit. Basic Personal Allowance reduces where the income is above £100,000 by £1 for every £2 of income above the £100,000 limit. This reduction applies irrespective of age.

So if, for example, you're 66 and have a taxable income of £25,900 (£500 over the limit) your age-related allowance of £10,500 would reduce by £250 (£500 ÷ 2) to £10,250.

If you're 66 and have an income of £35,400 (£10,000 over the limit) your age-related allowance of £10,500 will reduce by £5,000 (ie £10,000 ÷ 2) to become £5,500. However, you can't get less than the basic allowance unless your income is more than £100,000 so you'll get £8,105.

If you’re 66 and have taxable income of £110,000 (£10,000 over the basic limit) your basic allowance will be reduced by £5,000 (ie £10,000 ÷ 2) to become £3,105.

Blind Person's Allowance

If you're registered as blind with a local authority in England and Wales you can claim Blind Person's Allowance. To claim this in Scotland or Northern Ireland you must be unable to perform any work for which eyesight is essential. As with your Personal Allowance, this is an amount of income you can get without paying tax. For 2012-13 the allowance is £2,100.

• More about Blind Person's Allowance, including how to claim (money, tax and benefits section)

Step three – work out if you're a taxpayer

Take your tax-free allowances away from your taxable income. If there's anything left you count as a taxpayer and you must contact HMRC if you're not already paying tax. If there's nothing left you shouldn't be paying tax and may be due a refund.

Remember that you may qualify for other allowances such as Married Couple's Allowance and Maintenance Payments Relief that can reduce your tax bill. In some cases this may mean that you have nothing to pay at all. Follow the link below for 'Introduction to tax allowances and reliefs if you pay tax' to find out more.

If you already pay tax through PAYE, HMRC may be able to collect any extra tax you owe including that on your State Pension through PAYE if any of the following apply:

• you're getting a personal (including retirement annuity) or company pension
• you work part time
  

Otherwise they'll ask you to complete a Tax Review form P810 to report your income or to pay your tax through Self Assessment.

• Introduction to tax allowances and reliefs

• Do you need to complete a tax return?

• Income Tax rates and allowances Opens new window

How to contact HMRC

If you want to phone or write to HMRC follow the 'Contact HMRC' link below. If you're self-employed and want to write use the 'Find a Tax Office - for the Self Employed' link below. Whether you phone or write HMRC will need your National Insurance number, if possible.

• Contact HMRC Opens new window

• Find a Tax Office - for the Self Employed Opens new window

If you think you're paying too much tax

If you think you're paying too much tax or shouldn't be paying tax at all, follow the link below to find out how you can claim a refund.

• Claiming back tax or National Insurance at state pension age

Getting help and advice

The organisations below can provide you with free, independent tax advice. Please note the list isn't exhaustive and the links are to external organisations which are not managed by HMRC.

• Tax Help for Older People - for older people on low incomes Opens new window

• Taxaid - for people on low incomes Opens new window

• Citizens Advice Bureau Opens new window

Useful links

• Taxes

• Tax on your State Pension

• Read more about income and tax on the age UK website Opens new window

• More about tax for pensioners from the Low Income Tax Reform Group website Opens new window

Useful contacts

• Pensions and retirement planning contacts