Many do not understand the tax they pay. so with that in mind, we wrote some thoughts on the following: UK income tax explained.
In the UK, income tax is a tax on an individual’s earnings (income) from employment, self-employment, and other sources. HM Revenue and Customs (HMRC) collect the tax, and the rate at which they charge it depends on the amount of income an employee earns in a tax year (April 6th to April 5th the following year). The current rates are:
The majority of forms of income, including wages from a job, business profits, pensions, and even rent if you’re a landlord, are subject to income tax. Also obligated to pay tax on their profits are corporations, estates, and other sorts of businesses.
Given that most persons are eligible for one or more tax-free benefits or tax relief options, you might not have to pay income tax on all of your income. The amount of taxable income you can earn before paying income tax is known as an allowance.
Income tax and National Insurance contributions are usually deducted from an individual’s salary by their employer through a process called Pay As You Earn (PAYE). Some individuals may also be required to make a self-assessment tax return if they have other sources of income not covered by PAYE.
Tax-free state benefits are benefits that you can earn without having to pay income tax. The following are the most common state benefits that the state does not tax:
If your financial affairs are more complex (for example you’re self-employed or have a high income) you may pay Income Tax and National Insurance through Self Assessment. You’ll need to fill in a tax return every year.
You must also fill in a tax return if you earned more than either: