The main things you need to know about income tax are:
- It is your responsibility to tell HMRC if you owe it
- The rate you pay depends on the level of your income and even the type of income – for example, some savings income is taxed differently
- Income tax is charged for tax years – these run from 6 April in one year to 5 April in the next
- Most sources of income are taxable
- You can pay it in different ways – by deduction from your income, or by getting a bill
- For a table of current and recent income tax rates and allowances, see https://www.gov.uk/income-tax-rates/current-rates-and-allowances
We will look at these issues in more detail in the sections which follow.
The rate you pay depends on the level of your income
To work out your tax bill you need to add together all your taxable income. Some things, such as DWP benefits like Disability Living Allowance, are not taxable (although other state benefits are taxable) – we look at this in more detail in the section: Most types of income are taxable.
You are allowed a certain amount of tax free income over the year, which is called a ‘personal allowance’. You deduct this from your total income and the amount remaining is your ‘taxable income’. See the section Your personal allowance for more details on personal allowances.
You then compare the figure for your taxable income with the tax bands. Tax is charged at different rates depending on the level of your income. The first band of income is charged at the basic rate of tax which is 20%. There are higher bands with tax rates of 40% and 45%. See the section Tax rates and taxable bands. There is also a special lower rate of tax which applies to some savings income – see Taxation of savings for details.
Basic example: Sam is and employee and earns £18,000 in 2019/20. His personal allowance is £12,500 leaving £5,500 of taxable income. This is all taxed at the basic rate of 20%. So he is due to pay £1,100 of income tax. This should be deducted throughout the year by his employer. National Insurance will also be deducted (see National Insurance section for details).
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