If you are concerned by the continuing pressures on your take-home pay and need some certainty on your Income Tax liability, the HMRC calculator available at https://www.gov.uk/estimate-income-tax can be helpful.  Alternatively, if you believe you may have overpaid tax, reviewing your position could help you claim a refund.

The 'Estimate your Income Tax' service allows employees to calculate how much Income Tax and National Insurance they are likely to pay for the current tax year (6 April 2025 to 5 April 2026). It is particularly useful for those paid through PAYE, giving a clear picture of expected take-home pay after tax, pension contributions and any student loan repayments.

The tool is straightforward to use, but there are a few important points to keep in mind. If you have more than one job, you will need to run the calculator separately for each source of income. It is also not suitable if your only income comes from state benefits, such as the State Pension.

While the calculator provides a helpful estimate, it does not account for every scenario. For example, certain repayments, such as the Winter Fuel Payment for higher earners are not available on the calculator.

Following the deadline for submission of self-assessment tax returns for the 2024–25 tax year, it is a useful time to revisit the rules on how long you should keep your tax records. There are no strict requirements for how records must be kept, but they should be retained either on paper, digitally, or within appropriate software.

For personal (non-business self-assessment records, you are generally required to keep them for at least 22 months after the end of the relevant tax year. This means records for the year ended 5 April 2025 should be kept until at least 31 January 2027. If you file your tax return late, you must keep the records for at least 15 months from the date of filing.

The types of records you should keep include those relating to:

• Income from employment e.g. P60, P45 or form P11D forms
• Expense records if you’ve had to pay for things like tools, travel or specialist clothing for work
• Documents relating to social security benefits, including Statutory Sick Pay, Statutory Maternity, Paternity or Adoption Pay and Jobseeker’s Allowance.
• Income from employee share schemes or share-related benefits
• Savings, investments and pensions e.g. statements of interest and income from your savings and investments
• Pension income e.g. details of pensions (including State Pension) and the tax deducted from it
• Rental income e.g. rent received and details of allowable expenses
• Any income which is open to Capital Gains Tax
• Foreign income

This is not an exhaustive list, and you should retain any additional records used in preparing your tax return.

Different rules apply for business records. Self-employed individuals must usually keep records for at least five years after the 31 January submission deadline. For the 2024–25 tax year, this means retaining records until at least 31 January 2031. Penalties may apply for failing to keep accurate and complete records.

The Rent a Room Scheme is a set of special rules designed to help homeowners who rent out a room in their home, creating a potentially valuable tax-free income stream. Under the scheme, rent received from lodgers during the tax year is tax-free up to £7,500. The exemption is automatic if your income from the scheme is below this threshold, and no specific tax reporting is required. Homeowners can also choose to opt out of the scheme and report property income and expenses in the usual way.

The relief applies only to the letting of furnished accommodation, typically a bedroom rented to a lodger by homeowners in their home. The scheme simplifies both the tax and administrative burden for those with income from renting a room for up to £7,500. If the property has joint owners, the limit is halved for each joint-owner sharing the rental income.

The Rent a Room limit includes not only rent but also amounts received for meals, goods, or services provided to the lodger, such as cleaning or laundry. If gross receipts exceed the £7,500 threshold, taxpayers can choose between:

• Paying tax on the actual profit (gross rents minus allowable expenses and capital allowances), or
• Paying tax on gross receipts minus the £7,500 allowance, with no deduction for expenses or capital allowances.

A dividend is a distribution of a company’s profits to its shareholders. Companies may pay dividends in cash or additional shares, giving investors a share of the business’s earnings. Dividends are a common way for shareholders to earn income from their investments.

Dividends received within tax-advantaged accounts are completely tax-free. This includes dividends held in Individual Savings Accounts (ISAs) and in pensions, such as Self-Invested Personal Pensions (SIPPs) or other registered pension schemes. For investments outside these wrappers, dividends are subject to Income Tax, although all taxpayers benefit from a small £500 annual dividend allowance. This is in addition to the standard Personal Allowance of £12,570.

From April 2026, dividend tax rates will increase by 2%. The ordinary dividend rate will rise to 10.75%, while the upper dividend rate will increase to 35.75%. The dividend additional rate and the dividend trust rate will remain at 39.35%, and the dividend allowance will remain at £500.

Careful planning around dividend income is important in order to manage your overall tax liability.

It was confirmed as part of the Autumn Budget that the Income Tax thresholds will continue at their current levels for a further three years, extending the freeze until April 2031. This means that most tax allowances are to remain frozen for 2026-27 and beyond.

As a result, the personal allowance will stay at £12,570, while the higher rate threshold will remain at £50,270 for taxpayers across most of the UK (with different thresholds applying in Scotland). National Insurance thresholds will also remain fixed over the same period.

Keeping these thresholds unchanged means that many taxpayers will gradually pay more tax as their earnings increase over time. This effect, commonly known as fiscal drag, occurs when wages rise but tax bands do not. As incomes grow due to inflation or pay increases, a larger portion of earnings becomes taxable, and more people move into higher tax brackets.

In practical terms, the continued freeze is likely to push increasing numbers of taxpayers into the 40% higher rate band and, for some, the 45% additional rate band. Others who previously earned below the personal allowance may also begin paying Income Tax for the first time. Although tax rates themselves remain unchanged, the overall tax burden rises as more income becomes subject to tax.

Fiscal drag is influenced by several factors, including government policy on tax thresholds, inflation levels and wage growth. In periods of rising wages or high inflation, the impact of frozen thresholds becomes more pronounced. For taxpayers the impact of fiscal drag effectively operates as a stealth tax over time.