Almost everyone who lives and works in the UK is entitled to personal income tax benefits.
Personal tax is the amount of income that a person can receive each year without having to pay taxes on it.
Personal allowance rate
The amount of personal tax a person may receive depends on two variables, including:
- Age;
- Total revenue in the fiscal year.
Total income relates to everything that a person may receive from all taxable sources. Taxable sources can relate to various areas such as:
- Income from work;
- Income from self-employment;
- State, corporate & personal pensions;
- Interest;
- Dividend;
- Rental income.
The level of personal benefits can be broken down into three separate areas, including: Basic – Allows for £8,105 per year, Ages 65-74 – Allows for £10,500 per year and Ages 75 and over – Allows for £10,660 per year.
Tax Rates
If the income exceeds the rate stated above then tax will be paid; if it is below the threshold then it is not due.
The base rate starts at 20% and applies when a person’s income is between £8,105 and £34,370. Rates increase according to the amount of income a person receives. Those with incomes between £34,371 – £150,000 paid higher rates of 40%; and those earning over £150,000 pay an additional 50% rate.
How Income Tax is paid
Income Tax is collected in a variety of different ways depending on a person’s employment status and type of income. The various ways of collecting income tax include:
- The most common PAYE method (Pay by income);
- Self-assessment;
- Tax withheld at source;
- One payment.
It is very important to check whether the amount of income tax paid is correct, this can be done by checking the total taxable income, tax-exempt allowances and the applicable tax code. If it becomes clear that too much was paid then the money can be taken back.
Self-assessment
Self-Assessment means completing an annual tax return.
The self-assessment will show income and capital gains (gain on certain assets) and claims for benefits or relief on your tax return. The self-assessment tax return applies to a certain number of individuals, including:
- director of the company
- sole trader
- individuals and partners with high net worth.
Performing a self-assessment tax return can prove difficult without the help of a financial professional such as a chartered accountant who can provide a number of different services, including:
- Preparation of self-assessment tax forms;
- Annual review of income tax;
- General capital gains tax return advice;
- Provide advice on the most efficient form of tax remuneration;
- Tax planning (paying minimum taxes through effective planning).
Hiring an accountant to assist with the self-assessment will ensure that personal tax planning opportunities are not missed and that all available tax breaks are being claimed.