Understanding the nuances of income tax is a real uphill task for not just the individuals, but also the companies. Tax-Pert Accountants clarify the ways through which one can simplify the income tax process and what actually construed income tax; to whom it is payable and the rates under which the tax is payable by such persons. This guide should throw some light on the vital aspects of the income tax in the UK so that one can comply and manage their finances in an efficient manner.
What is Income Tax?
An income tax means any tax that is on income, be it salary and wages, profits from self-employment; pensions and certain capital receipts. While some income is free from taxation, the majority of earnings are taxable.
H.M. Revenue & Customs governs income tax with the following two systems:
Pay As You Earn: your earnings are taxed from your pay and your employer hands it over to the government.
Self-Assessment: The self-employed and the few who have an additional income source report and settle their taxes.
The power to prescribe rates and bands has been devolved to Scotland and Wales but collection is done by HMRC for income tax throughout the UK.
Who is liable to pay Income Tax?
Income tax applies primarily to individuals, trustees, and personal representatives managing estates.
UK Residents: They are liable to pay income tax on income that they receive all around the world.
Non-residents: Liable only to income tax to the extent that their income is from or arises in the UK.
Students and Children: They are subject to the same income tax rules as everyone else once their income exceeds their personal allowances.
Order of Taxation
Knowing the order of income taxation is critical given that they have various rates and allowances for different types of income.
Non-Savings and Non-Dividend Income: This includes wages, pensions, profits of self-employment, rental income, and welfare taxable benefits.
Savings Income:Consists of interest from savings accounts and similar financial instruments.
Dividend Income: Earnings from shares or dividends from companies.This is how the different bands and rates get applied in income taxation.
Income Tax Rates and Bands in the UK
Tax rates and bands for income are different from the source of income and where the taxpayer resides.
For Non-Savings and Non-Dividend Income:
Basic Rate: Up to £37,700 on income above the personal allowance would be charged by 20%.
Higher Rate: Beyond £50,270 income is charged 40%.
Additional Rate: The income above £125,140 is charged at 45%.
Example:
In case of earnings of £40,000 in 2024/25, with a qualifying allowance of £12,570:
Taxable income = £40,000 – £12,570 = £27,430
Tax liability at 20% = £5,486
For Scottish taxpayers: The Scottish taxpayers are thus taxed on income according to these six bands: starter, basic, intermediate, higher, advanced, and top rates.
For Welsh taxpayers: Income tax for those whose residents are within Wales would thus be taxed at the same basic, higher, and additional terms of the United Kingdom tax system into the Welsh income tax rates.
Rates of Tax on Income from Saving
Saving income is subject to certain tax rates in the United Kingdom, which apply after taking into account the particular personal savings allowances matching the income band.
Tax Rates on Income Derived from Dividends
Tax rates on dividend income depend on the level of total income. Therefore, to facilitate proper calculations, one has to understand the applicable rates, as well as various allowances.
How Tax-Pert Accountants Can Help
Tax-Pert Accountants is all about making income tax simpler, whether it is for individuals or businesses in London and throughout the UK. We cater for sole trader, partnership, and limited company customers with the following:
- Simple income tax calculations.
- Advise on allowable deductions with a view to minimizing tax liabilities.
- Lodge accurate tax returns at the right time.
All certified accountants in our team ensure customers are compliant but not in a tax-efficient manner with the relevant HMRC rules.
More Information
Income-tax is more complicated, particularly when multiple income streams have to be accounted for, exemptions, and allowances. So the expert accountant of Tax-Pert is here to tailor the solutions according to requirements to the financial goal of the taxpayer.
📞 Contact us today to discuss how we can assist you with income tax management. Let us handle the complexities so you can focus on what matters most – growing your business.