Income Tax was introduced during the
Napoleonic Wars as a temporary wartime measure and has remained
with us ever since. Few people would admit to liking Income Tax
but we all want to benefit from the services
that governments provide and pay for using Income Tax.
Income Tax is based on how much you earn
and in simple terms the more you earn the more you pay. However,
everyone is allowed to earn a minimum amount before they have
to pay tax.
This is called
your allowance. Each year the Inland
Revenue sends you a tax code. This
takes the form of a number such as
489. This
represents the total amount of money
you can earn before paying tax. To
work
out how much you can earn you need
to multiply your code by ten so that
a
code of 489 means you can earn £4895
before paying any tax.
Allowances change each
year since the government normally increases them by the rate
of inflation and sometimes changes the way they are calculated.
Paying Income Tax When you first start working you might expect to earn
your allowance before having to pay tax but normal practice is
to consider how much you would earn during the whole tax year
and to average your income tax over the entire year so you will
pay immediately.
There
are also two new tax credits available
since April 2004, which work in a different
way to tax allowances, for more information
click on each bar below.
Over the
age of 65, people on lower incomes
have increased Personal Income Tax
Allowances so that they will pay
less Income Tax. The amount
of these allowances varies depending
on whether you are married or not
and exactly what age you are. If
your income exceeds a specified amount,
the allowance will be reduced by £2
for every £1 that your total
income exceeds the limit so that, for
people on higher incomes, the allowance
eventually reduces back to the normal
Personal Allowance.
To claim
married couple’s
allowance you need to be living as
a married couple or as civil partners
and at least one of you must have been
born before 5 April 1935.
Self
Assessment Your tax code and hence the amount of
tax you pay is based on your income. The HM Revenue & Customs will ask
some people to complete a form describing their income from employment,
savings and other sources. This is called Self Assessment. In
most instances, but not all, you will only be required to complete
a Self Assessment form if your are self-employed.
