Income tax is a tax you pay on income after it exceeds a certain amount set by the government. However, you are not required to pay it on all types of income as there are certain amounts that are exempted or there are various reliefs and allowances that you can claim on such incomes.
Basically, it is the tax levied on your personal income and is paid on different sources of income such as:
On the other hand, there are some incomes that you do not have to pay income tax on such as:
The UK tax system requires the taxation of incomes such as earnings, income from pensions, non-dividend income, and non-savings income initially. Afterward, the dividend income and the savings income is taxed. Each of these has different tax rates. Also, there are different tax bands for instance if you are in Scotland, there will be different tax rates to be applied to your non-savings and non-dividend income. But the tax rates on savings and dividend income are the same as in the UK.
Income tax has been the greatest source of income for the government of various countries and so is the case in the UK. The biggest reason behind it being a major source is that personal income contributes to forming the greatest part of the national income of a country. There are different sources on which income tax is levied such as the tax on wages or salaries of employees, the income of the self-employed people, rental income, etc.
Ways by which tax is levied
In the UK, there are different ways of levying income tax:
How much Income Tax to pay in the UK?
The majority of personal income in the UK is allowed for the personal allowance of tax-free income. A tax-free allowance is a certain amount of income that an individual can receive before paying tax. This tax-free allowance continues to reduce after your income has exceeded the income bar of £100,000. There are other different allowances as well such as the Blind persona allowance and the Married Couple’s Allowance.
Income tax rates in the UK vary a lot and are entirely dependent on the category of tax bracket that an individual falls into. The three categories for Income Tax in the UK are the basic rate (20%), the higher rate (40%), and the additional rate (50%).
Income tax in the UK has been confusing the people for decades creating havoc and becoming a cause of stress. But you can get professional services if you do not how to go about paying the taxes in a way that benefits you. You do not think about the tax thresholds when you hire a professional as they can ease down your life and make it easy the filling the tax return.
You have to ensure whether you need your tax to be calculated by the self-assessment system or on a PAYE basis. They provide you a simple way of filing a tax return which is approved by HMRC. You will get to know expenses for the reduction in the tax bills and keep your tax records safe in reliable hands.