Introduction to Income Tax | NatWest

 

 

 

Introduction to income tax

Income tax, as the name suggests, is a tax you pay on your income. In addition to your main source of income from employment, you also have to pay tax on any money you make from self-employment, rental income, most pensions, and some benefits and savings. The tax and national insurance you pay is collected by HM Revenue & Customs (HMRC) and used by the government to fund public services like schools, the NHS, state benefits and the police.

 

How much income tax will I pay?

  • The rate of tax you pay is determined by which tax band you fall into. This is based on your annual earnings, and if these rise, so does the amount you have to pay. The way the system is structured means those who earn the most, pay the most tax.
  • Every year you’re entitled to a tax free personal allowance, which is £11,500 for 2017/18. As well as this, the basic rate limit is £33,500, meaning the higher rate threshold will be set at £45,000. These increases from 2016/17 are part of the government’s plan to raise the personal allowance threshold to £12,000, and the higher rate threshold to £50,000 by the end of Parliament.

Are state benefits taxable?

If you’re entitled to state benefits, it’s important to know the following benefits can be taxable:

 

  •  Jobseeker’s allowance
  •  Carer’s allowance
  •  Employment and support allowance
  •  Widowed parent’s allowance
  •  Widowed mother’s allowance
  •  Widow’s pension
  •  Bereavement allowance
  •  Incapacity benefit

How do I pay income tax?

  • If you’re employed, your tax is likely to be deducted at source, which means it’s taken out of your salary before you receive it. This is usually done through the pay as you earn (PAYE) system, used by most employers who are required to send your tax deductions directly to HMRC. Your pay slip should show a breakdown of the tax you’ve paid, along with your gross to net pay difference. If you receive any income other that a basic salary paid under PAYE, you may have to pay tax through self assessment by filling out a tax return each year.

The information contained on this webpage is based on our understanding of UK tax legislation and HMRC Interpretation. The contents of this webpage do not constitute tax advice and are meant as a general guide only. If you are unsure of your tax obligations or responsibilities you are recommended to seek professional tax advice. Tax reliefs referred to are those applying under current legislation, which may change. The availability and value of any tax reliefs will depend on your individual circumstances.

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