Income tax can be very taxing for many people. Many people find it quite difficult to understand how income tax is calculated, what the various tax codes mean, who is required to pay income tax and so on and so forth. What is clear though, is that Her Majesty’s Revenue and Customs (HMRC) can come after you if you unlawfully pay less tax than you are required to pay, which is one good reason to get it right.
Below we cover the essential aspects of income tax.
What is income tax?
Income tax is tax you pay on earnings you receive. These earnings could either be income you receive from your employment, pension, some savings, rental income or profits you make from self-employment, to mention a few.
How much income tax is payable?
This depends on your tax bracket.
For the 2017/2018 tax year, the first £11,500 of earnings is a tax free personal allowance.
All other earnings above £11,500 will be charged at the following rates:
• Basic rate of 20% on earnings from £11,500 to £33,500
• Higher rate of 40% on earnings from £33,500 to £150,000
• Additional rate of 45% on all earnings in excess of £150,000
How is income tax paid in the UK?
• Your employer deducts income tax from your wages using the Pay As You Earn (PAYE) system before paying your wages to you, or;
• You file a self-assessment tax return to HMRC. HMRC calculates what you owe based on the information you provide in the self-assessment. People with complex tax arrangements or those who are self-employed usually use the self assessment procedure.
As accountants in Melton Mowbray we can offer the full range of accountancy services to individuals and businesses in the area. Contact us today.