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UK Income Tax

With the recent budget supplying new details on tax in the UK for all workers, we took a look at UK income tax as it stands right now.

What Is Income Tax?

In the UK, income tax is a tax levied by the government on the earnings of individuals, sole traders, partnerships, and limited companies. The amount of tax that an individual has to pay is based on their total income. This includes earnings from employment, self-employment, pensions, and investments.

Tax Bands

There are different tax bands that determine the amount of tax an individual pays. These tax bands are reviewed and updated each year. They apply to the taxable income earned in the tax year, which runs from 6 April to 5 April the following year.

For the tax year 2022/23, the basic rate tax band is up to £50,270, and the higher rate tax band is from £50,270 to £125,140. The additional rate tax band applies to income over £1250,140. The tax rates for these bands are as follows.

  • Basic rate (20%) on income up to £50,270.
  • Higher rate (40%) on income from £50,270 to £125,140.
  • Additional rate (45%) on income over £125,140.

There is also a personal allowance, which is the amount of income an individual can earn tax-free. For the tax year 2022/23, the personal allowance is £12,570. Chancellor Jeremy Hunt has frozen the income tax personal allowance until April 2028. Basic rate tax payers do not have to pay any tax on income below this level.

Other Freezes

Additionally, he has frozen the threshold (point) at which persons begin to pay higher tax rates. It implies that as wages rise, more people will enter higher tax bands and pay tax on a larger part of their income.

By keeping criteria frozen until 2028, according to the Office for Budget Responsibility, which impartially evaluates the government’s economic policies, an additional 3.2 million people would become taxpayers.

According to the report, 2.6 million more persons will pay higher rate taxes.

Employer Responsibilities

Employers are responsible for deducting income tax from their employees’ pay through the Pay As You Earn (PAYE) system. Self-employed individuals and those with other sources of income will need to complete a Self Assessment tax return each year to calculate the amount of tax they owe.

Other Taxes

It’s important to note that income tax is just one type of tax that individuals may have to pay in the UK. Other taxes include National Insurance contributions, Value Added Tax (VAT), and capital gains tax.

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