Everything You Need to Know About the British Tax System
It often happens that British citizens struggle to understand how the UK tax system works, wondering how much and how often they have to pay taxes. The UK tax system is in fact really intricate and difficult to figure out for a regular citizen, for it is a complex plan of tax bands, relief schemes and allowances. The easiest way to understand how the system works is to keep in mind a very important rule: the amount of tax you have to pay generally depends on the way you earn your income and on how much you earn every month. As a matter of fact, you have to base all your calculation on your job situation, for the many tax rules that have been set by the government will change according to one’s circumstances. If you’re and employee, your tax situation will be a lot different from that of a self-employed person, a director or the owner of a business. To complicate this matter, there’s the Personal Allowance, which consists of a variable amount of funds that workers can earn every fiscal year before paying income tax. This allowance is set by the government and will be different according to one’s economic and job situation. It might also vary from one fiscal year to another. As for the timing for paying taxes, the question is quite simple. The UK government has indeed set up fixed dates. Just write them down and remember to pay in those days. In fact, the UK tax year runs from April 6 to April 5. If you’re moving to the UK and you’re worried you won’t be able to learn how the British tax system works keep reading. In the following paragraphs we’ll go deeper into this matter.
Income tax: how does it work?
Let’s have a closer look on how the UK tax system works. Basically, income tax is charged on different kinds of income, like wages and salaries from work. The government also charges income tax on profits (for instance for people who run businesses), pensions, rents (for instance if you run a property) and interest and dividends from all types of investments and savings. The purpose of income tax, which is collected by the HMRC on behalf of the government, is to help grant funding for all public services, such as welfare, education, the NHS, road construction, housing, construction of railways and any other kind of investment aimed at the realization of public projects. There are also some cases in which you won’t have to pay any income tax. This could happen if you’re entitled to an allowance, which consists of a tax-free income you can earn every tax year.
Personal Allowance: what it is and what it is for
So, to recap, although everyone has to pay income tax according to their taxable salary received during the tax year, some people are entitled to a personal allowance. What is it about? The personal allowance is a flexible amount which is deducted from your income before you start paying your taxes. In the UK, everyone is entitled to this kind of allowance. As previously mentioned, it is a really variable amount, which value can vary depending on your job and tax situation. Some people are in fact entitled to a higher personal allowance, for instance if they request marriage allowance or some kind of disability allowance. The amount may vary from case to case and the government will decide how much you owe based on your situation. Nowadays, the standard personal allowance is currently up to £12,500, which will be reduced for people who earn over £100,000.