1) Income tax
Who is charged with income tax?
Sole traders’ profits may be charged with income tax.
Partners’ profits may be charged individually with income tax. This includes salaries and
interest on capital contributions. However, loans and rents are deducted.
Company employees’ income and payment as reward may be charged with income tax. This
includes salary, wages, enrolment of company cars.
What reliefs and exemptions are deductible?
Personal allowance is worth £12,570 in 2020-21 and £12,500 in 2021-22.
Married couple’s allowance is allowed where the taxpayer was married before 5 December
2005, living together as married, and at least one spouse was born before 6 April 1935.
HMRC will reduce the tax bill by 10%. If the taxpayer was married on or after 5 December
2005, the person with the higher income may make the claim for allowance.
Marriage allowance is allowed where the couple is born on/after 6 April 1935, the person’s
income is less than the personal allowance, and the spouse/civil partner pays income tax at
the basic rate. 10% of the remaining personal allowance will be sent to the spouse/civil
partner.
A blind person’s allowance applies to a certified blind person in Scotland or Northern Ireland
and cannot work. In this case, his personal allowance is tax free.
Maintenance payment reliefs apply where the taxpayer/ex-spouse is born before 6 April
1935. The court will then order payments to maintain the ex-spouse/children under the age of
21.
Personal savings allowance means that a person’s savings worth £1,000 is not taxed.
Dividend allowance means that in a dividend, the first £2,000 is not taxed.
Interest on qualifying loans for share purchases, plant and machinery purchases are exempt.
Trading income allowance exempts sale of goods/services where the trading income is less
than a specified amount.
Property allowance exempts income earned from property valued less than a specified
amount.
Gift aid donations allow 20% deduction to be reclaimed.
National insurance must be paid with income tax, which can be lowered in some ways.
, How is income tax calculated?
Taxable income is for the year between 6 April to 5 April. Taxable income includes earnings,
pension income, interest from savings banks, rent income and state benefits (jobseekers’
allowance). Income rate is as follows. Between £0 to £37,700, income tax is at 20% and
dividends is at 7.5%. Between £37,700 and £150,000, income tax is at 40% and dividends is
at 32.5%. Over £150,000, income tax is at 45% and dividends is at 38.1%.
Non-taxable income includes state benefits involving disability/living/housing benefits, tax
exempt income, working tax credit, premium bonds, maternity allowance, and war widow’s
pension.
Who is charged with income tax?
Sole traders’ profits may be charged with income tax.
Partners’ profits may be charged individually with income tax. This includes salaries and
interest on capital contributions. However, loans and rents are deducted.
Company employees’ income and payment as reward may be charged with income tax. This
includes salary, wages, enrolment of company cars.
What reliefs and exemptions are deductible?
Personal allowance is worth £12,570 in 2020-21 and £12,500 in 2021-22.
Married couple’s allowance is allowed where the taxpayer was married before 5 December
2005, living together as married, and at least one spouse was born before 6 April 1935.
HMRC will reduce the tax bill by 10%. If the taxpayer was married on or after 5 December
2005, the person with the higher income may make the claim for allowance.
Marriage allowance is allowed where the couple is born on/after 6 April 1935, the person’s
income is less than the personal allowance, and the spouse/civil partner pays income tax at
the basic rate. 10% of the remaining personal allowance will be sent to the spouse/civil
partner.
A blind person’s allowance applies to a certified blind person in Scotland or Northern Ireland
and cannot work. In this case, his personal allowance is tax free.
Maintenance payment reliefs apply where the taxpayer/ex-spouse is born before 6 April
1935. The court will then order payments to maintain the ex-spouse/children under the age of
21.
Personal savings allowance means that a person’s savings worth £1,000 is not taxed.
Dividend allowance means that in a dividend, the first £2,000 is not taxed.
Interest on qualifying loans for share purchases, plant and machinery purchases are exempt.
Trading income allowance exempts sale of goods/services where the trading income is less
than a specified amount.
Property allowance exempts income earned from property valued less than a specified
amount.
Gift aid donations allow 20% deduction to be reclaimed.
National insurance must be paid with income tax, which can be lowered in some ways.
, How is income tax calculated?
Taxable income is for the year between 6 April to 5 April. Taxable income includes earnings,
pension income, interest from savings banks, rent income and state benefits (jobseekers’
allowance). Income rate is as follows. Between £0 to £37,700, income tax is at 20% and
dividends is at 7.5%. Between £37,700 and £150,000, income tax is at 40% and dividends is
at 32.5%. Over £150,000, income tax is at 45% and dividends is at 38.1%.
Non-taxable income includes state benefits involving disability/living/housing benefits, tax
exempt income, working tax credit, premium bonds, maternity allowance, and war widow’s
pension.
