LifeInUKPractice

Chapter 5 focused study guide

UK Taxation, Income Tax and National Insurance

Study how Income Tax, National Insurance, HM Revenue and Customs and personal tax responsibilities work in the United Kingdom.

By LifeInUKPractice Editorial Team Reviewed by NEOX Content Review Last reviewed 27 July 2026

Section 5.4.1

Taxation

Taxes fund public services and government activity. Income Tax is charged on taxable income, while National Insurance contributions help fund specified benefits and services. Value Added Tax is included in the price of many goods and services.

PAYE—Pay As You Earn—is the system through which many employers deduct Income Tax and National Insurance from pay. Tax rates and allowances change, so use HM Revenue and Customs for current figures.

Targeted practice

These questions prioritise terms covered on this page. Open an answer to review the explanation before moving to the full Chapter 5 practice set.

  1. Sample question 1

    Who has to pay national insurance contributions in the UK?

    • Everybody under the age of 65
    • Almost everybody who is in paid work
    • Everybody under the age of 70
    • People with earnings over £18,000 per year
    Show answer and explanation

    Answer: Almost everybody who is in paid work

    Almost everybody in the UK who is in paid work, including self-employed people, must pay National Insurance Contributions.

    Review Taxation

  2. Sample question 2

    A person who has not paid enough National Insurance contributions will not be able to receive certain contributory benefits including (choose two options):

    • Jobseeker’s Allowance
    • A full state retirement pension
    • Maternity Allowance
    • Disability Living Allowance
    Show answer and explanation

    Answer: Jobseeker’s Allowance and A full state retirement pension

    Anyone who does not pay enough National Insurance Contributions will not be able to receive certain contributory benefits such as Jobseeker’s Allowance or a full state retirement pension.

    Review Taxation

  3. Sample question 3

    What is the system by which the income tax is automatically taken from the employee’s income by their employer and paid directly to HM Revenue & Customs (HMRC)?

    • Self-assessment
    • “Pay As You Earn” (PAYE)
    • Tax return
    • Pension tax
    Show answer and explanation

    Answer: “Pay As You Earn” (PAYE)

    For most people, the right amount of income tax is automatically taken from their income from employment by their employer and paid directly to HM Revenue & Customs (HMRC), the government department that collects taxes. This system is called “Pay As You Earn” (PAYE).

    Review Taxation

  4. Sample question 4

    What is the money raised from the Income Tax used for (choose three options)?

    • Education
    • The National Grid system
    • Police and the Armed Forces
    • Roads
    Show answer and explanation

    Answer: Education; Police and the Armed Forces; Roads

    Money raised from income tax pays for government services such as roads, education, police and the armed forces.

    Review Taxation

  5. Sample question 5

    A National Insurance number does on its own prove to an employer that you have the right to work in the UK:

    • TRUE
    • FALSE
    Show answer and explanation

    Answer: FALSE

    A National Insurance number does not on its own prove to an employer that you have the right to work in the UK.

    Review Taxation

More Chapter 5 questions

Further verification

Official and primary sources

Use the official handbook for the knowledge syllabus. For current administrative information or broader context, consult the relevant primary source.

Reviewed 27 July 2026. See the editorial policy and factual update log.