What counts as earned income for tax purposes in the UK?

Full answer

HMRC divides income into different categories, each with its own tax treatment. "Earned income" (more precisely, employment income under Part 2 of ITEPA 2003) includes: **Taxed as earned income:** - Wages, salary, overtime and bonuses - Commission and tips (including through a TRONC scheme) - Company benefits reported on a P11D (car benefit, private medical insurance, loans above £10,000) - Redundancy pay above the £30,000 tax-free threshold - Statutory payments: SSP (£123.25/wk), SMP (£194.32/wk), SPP - Self-employment profits (taxed via Income Tax and Class 4 NI) - Employment income from a director's salary **Not classed as earned income (different tax rules):** - **Dividends:** 8.75% / 33.75% / 39.35% after the £500 dividend allowance — no NI. - **Savings interest:** Taxed as non-savings income; but the Personal Savings Allowance shelters £1,000 (basic rate) or £500 (higher rate); starter savings rate of 0% on up to £5,000 for low earners. - **Rental income:** Property income, taxed at marginal rate but with different expense rules; not subject to NI. - **Capital gains:** 18% (basic rate) or 24% (higher rate) for residential property and investments; 18% for BADR-qualifying business disposals; £3,000 annual exempt amount. **Why it matters:** Earned income counts toward the NI thresholds, pension contribution limits (you can only contribute up to 100% of earned income to a pension), and Working Tax Credit/Universal Credit calculations. Dividend income and rental income do not count as "relevant UK earnings" for pension purposes.

Try the calculator

Related guides

• Self Employed Tax Uk