What Is The Meaning Of Being Taxed At Source?

If you are wondering what is meaning of being taxed at source, you will find the answer to your question as you read along the following blog post. In addition to explaining what is meant by being taxed at source, we will also explore how the system works, how income tax is calculated when your earnings are taxed at source and if there are any benefits to taxpayers of having their income taxed at source.

What Is The Meaning Of Being Taxed At Source?

Taxed at source in the UK is a method of taxation which is deducted before you receive your income. This means that money is taken out of your salary before you get paid. This is done in accordance with PAYE (Pay As You Earn). The tax that is taken at source is based on the total amount you earn in a tax year, minus any tax-free allowances.

Taxed at source is typically paid to HMRC (Her Majesty’s Revenue and Customs) every month, however, it can be paid on a different timescale such as weekly or annually. You can calculate the amount of tax you pay at source using HMRC’s tax calculation tool.

Taxed at source can be a convenient form of taxation for those who have a steady income, however, it may be disadvantageous to those with fluctuating incomes as they may not be able to spread their taxes over a period of time. 

Furthermore, it can be difficult to adjust your tax code once it has been set, meaning it can be difficult to ensure that you are not being over-taxed. Therefore it is important to ensure that your tax code is correct.

How Does The Tax At Source System Work?

Here is how the taxation at source system works in the UK:

  • Your employer or pension provider deducts tax from your income before paying it to you. They use a tax code provided by HM Revenue and Customs (HMRC) to calculate how much tax should be deducted.
  • The tax code takes into account your tax-free personal allowance, any other allowances you may be eligible for, and any taxable benefits you receive.
  • The amount of tax deducted is based on your income for that pay period. If you earn more, you will pay more tax. If you earn less, you will pay less tax.
  • Your employer or pension provider pays the tax they have deducted to HMRC on your behalf.
  • At the end of the tax year (which runs from 6 April to 5 April the following year), you will receive a P60 form from your employer or pension provider. This form shows how much you have earned and how much tax has been deducted during the tax year.
  • If you have overpaid tax during the year, you can claim a refund from HMRC. If you have underpaid tax, you will need to pay the difference to HMRC.

How Much Tax Do You Pay If Your Income Is Taxed At Source?

The amount of tax that is deducted when you are being taxed at source depends on your income and your tax code.

Your tax code is used to calculate how much tax-free income you are entitled to and how much tax you should pay on your remaining income. This code is based on your personal circumstances, whether you receive any taxable benefits, and whether you have any other sources of income.

The basic tax-free allowance for the tax year 2022/2023 is £12,570. This means that if you earn less than this amount in a tax year, you will not have to pay any income tax.

For income above the tax-free allowance, the amount of tax that is deducted at source depends on your tax bracket. There are currently three main tax brackets in the UK:

  • The basic rate of 20% tax applies to income between £12,571 and £50,270
  • A higher rate of 40% tax applies to income between £50,271 and £150,000
  • An additional rate of 45% tax applies to income above £150,000

For example, if your income is £30,000 per year, your tax code is likely to be 1257L, which means that your personal allowance is £12,570 and you are entitled to tax-free income of £1,257. You will pay 20% tax on the remaining £16,173, which means that your tax deducted at source will be £3,234.60 per year or £269.55 per month.

You can use this online tool on the UK Government website to check your Income Tax for the current year and the amount you should be paying if your income is taxed at source.

Are There Any Benefits To The Taxpayer Of Being Taxed At Source?

Being taxed at source has its benefits for taxpayers, especially those whose incomes fluctuate greatly during the year. This is because the tax is already taken off the income before it is paid to the taxpayer. As a result, there is less risk of the taxpayer having to pay a large amount of tax at the end of the financial year. 

Another benefit to the taxpayer is that they have an accurate record of the amount of tax they have paid each year. This can be beneficial if the taxpayer is ever audited by HMRC, as it allows them to prove that their taxes were paid in full.

In addition, some people may not be aware of the amount of tax they owe or the deductions available to them. Taxing at source can mean that the taxpayer pays the correct amount of tax each year, without them having to worry about calculating the amount themselves.


Being taxed at source generally classifies a taxpayer under the PAYE system. According to this, their employer will deduct the due amount of income tax from their gross income as per the tax code assigned to them by HMRC. Overall, taxing at source can be a beneficial process for taxpayers, especially those who are not confident in their ability to calculate the correct amount of tax each year.


Definition – Tax at source | Insee

How is my tax collected?

introduction: How you pay Income Tax – GOV.UK