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All you need to know about income tax

All you need to know about income tax

This is best described as the Tax you pay on your income. Tax is not paid on all types of income.

Tax is paid on incomes such as:

  • Salaries
  • Job profits
  • profits you make should you be self-employed as well as from services you sell by means of apps or websites
  • Dividends from company shares
  • Income from a trust
  • Retirement funds, including state pensions, personal pensions, company pensions as well as retirement annuities
  • Interest on pensioner bonds and savings
  • A few state benefits
  • Rental proceeds (except if you are a live-in landlord and obtain £4,250/less)

Tax is not to be paid on incomes such as:

  • National Lottery wins or Premium bond
  • Income Tax reliefs and allowances
  • incomes from a tax-exempt account such as the National Savings Certificates and Individual Savings Accounts (ISAs)
  • the initial £4,250 of rent that you get from a tenant in your house
  • Certain state benefits

The majority of the populace in the United Kingdom have an Individual Allowance or income that is free of tax. This happens to be the income amount you could have prior to paying your tax.

Furthermore, the amount paid for tax can also be reduced by tax reliefs should you be eligible for it.

Income Tax if you live in Scotland

However, inhabitants of Scotland might have to pay a different rate of income Tax from April 2016

Current rates and allowances

The amount you pay each year on income Tax is based on:

  • the amount that falls within the range of each tax band
  • how much of your income is more than your Personal Allowance
  • Certain incomes are tax-free.

The current tax year runs from 6 April 2015 to 5 April 2016.

Your tax-free Personal Allowance

The amount of income you don’t have to pay tax on is £10,600. That is the standard Personal Allowance.

Should your birth date be before 6 April 1938 or should you get a Blind Person’s Allowance, your Personal Allowance may be bigger. However, It will be smaller should your income be more than £100,000.

Income Tax on savings and dividends

Interest on savings is by default taxed at 20%. If you are on a low income, it is possible to get tax-free interest or a portion of the tax back. Additional rate tax payers will have to pay more tax.

Perhaps you own shares in a company, and you are a higher rate tax payer? Then you must pay additional tax on dividends.

Paying lower Income Tax

Should you be eligible for them, you may be able to claim Income Tax reliefs.

If you are in civil partnership or married

It is possible for you to claim the new Marriage Allowance in order to reduce the tax of your partner in the event that your income is lower compared to the normal individual Allowance.

If you fail to claim your Marriage Allowance and either you/your spouse were born earlier than April 6, 1935, you may likely claim Married Couple’s Allowance.

Your Company Formations are a leading company formation agent and provide high level of customer service to all our clients. If you are thinking of starting a company please don’t hesitate in contacting our formation team who will be more than happy to discuss any questions you may have.

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Jody Smith
Jody Smith
A content and media expert, I have worked for 7 years alongside start-ups and small businesses to effectively promote their brands through blogs, social media and content marketing strategies.

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