Income Tax in Cambridge – What You Need to Know for 2025/26
If you live and work in Cambridge – whether you’re an employee at one of the city’s tech firms, a self-employed consultant, or running your own café – chances are you’re paying Income Tax.
Income Tax is one of the UK government’s main sources of revenue, funding essential public services like the NHS, education, and transport infrastructure. Understanding how it works, and what allowances apply, can help you plan ahead and avoid unnecessary tax bills.
Who Pays Income Tax?
If you live and work in the UK and earn above a certain threshold, you’ll likely pay Income Tax. This applies to income from:
- Employment – wages, salaries, and bonuses
- Self-employment – profits from running your own business
- Pensions – state, workplace, or private
- Rental income – from letting property
- Savings and investments – above certain allowances
Some income is tax-free, such as the Personal Allowance (£12,570 per year in 2025/26) and certain government benefits.
Income Tax Rates for 2025/26
The UK operates a progressive tax system, meaning the more you earn, the higher the rate you pay:
- £0 – £12,570: 0% (Personal Allowance)
- £12,571 – £50,270: 20% (Basic Rate)
- £50,271 – £125,140: 40% (Higher Rate)
- Over £125,140: 45% (Additional Rate)
If your income exceeds £100,000, your Personal Allowance is reduced by £1 for every £2 you earn above that threshold.
How Is Income Tax Collected?
- Employees – Tax is usually deducted automatically through the PAYE (Pay As You Earn) system by your employer.
- Self-employed – You’ll need to file a Self Assessment tax return and pay your tax directly to HMRC.
For Cambridge’s growing number of freelancers, consultants, and start-up founders, keeping on top of tax deadlines is essential to avoid penalties.
Why Income Tax Planning Matters for Cambridge Residents
With Cambridge’s high living costs, every pound saved counts. By understanding your allowances, tax bands, and deductible expenses, you can:
- Reduce your tax bill legally
- Budget more effectively
- Avoid unexpected liabilities at year-end
A local Cambridge accountant can help you check your tax code, ensure you’re using all available allowances, and plan ahead for future liabilities.
Final Word
Whether you’re on PAYE, self-employed, or juggling multiple income streams, knowing how Income Tax works can help you stay compliant and financially prepared.
If you’d like expert help managing your taxes, GMS Business Accountants in Cambridge can make sure you’re not paying a penny more than you should.
