Income Tax - the basics

Income Tax is a tax on income. Not all income is taxable and you're only taxed on 'taxable income' above a certain level. Even then, there are other reliefs and allowances that can reduce your Income Tax bill - and in some cases mean you've no tax to pay.

What counts as taxable income?

Taxable income includes:

· earnings from employment

· earnings from self-employment

· most pensions income (State, company and personal pensions)

· interest on most savings

· income from shares (dividends)

· rental income

· income paid to you from a trust

Non-taxable income

There are certain sorts of income that you never pay tax on. These include certain benefits, income from tax exempt accounts, Working Tax Credit (WTC) and premium bond wins. These income sources are ignored altogether when working out how much Income Tax you may need to pay.

Tax-free allowances

Nearly everyone who is resident in the UK for tax purposes receives a 'Personal Allowance', which is an amount of taxable income you're allowed to earn or receive each year tax-free.

This tax year (2011-12), the basic Personal Allowance - or tax-free amount - is £7,475. You may be entitled to a higher Personal Allowance if you're 65 or over.

If you're registered blind, or are unable to perform any work for which eyesight is essential, you can also claim the tax-free Blind Person's Allowance.

Income Tax is only due on taxable income that's above your tax-free allowances.

Allowances and reliefs that can reduce your Income Tax bill

If you're due to pay Income Tax, there are a number of deductible allowances and reliefs that can reduce your tax bill. These include:

· Married Couple's Allowance - the husband, wife or civil partner has to be born before 6 April 1935

· Maintenance Payment relief - either you or your former spouse or civil partner must have been born before 6 April 1935

Unlike the tax-free allowances, these aren't amounts of income you can receive tax-free. Rather they're amounts that can reduce your tax bill.

Tax allowances and reliefs for employees or directors

If you're an employee or director you might be able to get tax relief for business expenses you've paid for.

Tax on company benefits

If you're employed and you receive non-cash benefits from your employer you will have to pay tax on them.

Taxable benefits

Benefits that you might have to pay tax on include:

· company cars or vans

· fuel provided for your vehicle

· medical insurance

· living accommodation

· loans at low interest rates

Date: 2015-12-24; view: 443