Income Tax
Income Tax is payable on your income both earned through employment and unearned through investment. Some of the income you earn is tax free, up to your personal allowance, each year. For most people their personal allowance is £10,600, which means you can earn up to £10,600 each year before paying any tax.
Once you earn over your personal allowance you will pay tax on all the money you earn. For most people in work this will be done automatically by your employer through the PAYE (pay-as-you-earn) system so the money you receive is your net money (that is net of income tax and national insurance) ordinarily there is no more tax to pay, although sometimes you pay too much or too little through PAYE and this has to be adjusted at the end of the tax year. This generally applies where you have benefits which attract additional tax, called benefits in kind. Items which attract benefit in kind tax are employer loans, company cars and private medical insurance.
Once you start paying tax you will pay tax according to your level of income according to set rates in bands of income (called tax-bands).
For 2015-16, the tax bands are as follows –
- Basic rate 20% £0 to £31,785
People with the standard Personal Allowance start paying this rate on income over £10,600 - Higher rate 40% £31,786 to £150,000
People with the standard Personal Allowance start paying this rate on income over £42,385 - Additional rate 45%
For all income over £150,000. The Personal Allowance is removed for every £1 of income above £100,000
Also see -
Tax Planning Income Tax on Savings and Dividends Capital Gains Tax
Entrepreneur's Relief Inheritance Tax (IHT) Write a Will Charitable Gifts
Potentially Exempt Transfers (PET) Corporation Tax National Insurance
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