INCOME TAX
Tax which is sufered directly by the taxpayer, income tax, capital gains tax
DIRECT TAX and corporation tax. Tax on income and cash received.
INDIRECT TAX Tax which is passed on to the final consumer, VAT and custom duties.
Tax on expenditure.
INCOME TAX
Income -> if there is an element of recurrence (salary or partnership profit share received each
month, interest paid on bank or building society every quarter)
Capital gains tax -> taxes the profit made from disposing of an asset
Who pays income tax?
- Individuals, sole traders
- Partnerships ( partners are individually responsible for the tax due on their share of partnership
profits)
- Personal representatives ( who pay the deceased’s outstanding Incom Tax nad Income Tax
chargeable during the administration of an estate)
- Trustees (who pay Income Tax on the income produced by the trust fund)
Tax year = 6 April - 5 April
Collection
Income tax is collected in different ways depending on the type of income and whether someone
is employed, self-employed or not working.
- PAYE (Pay as you earn) -> employees and those receiving company pensions. It is deducted
from the salary along with National Insurance (deduction of tax at source) .
- Self assesment -> the self-employed are responsible for making the relevant payment to
HMRC.
- Sole traders and partnerships , but not companies, are required to register for self-assesment.
It is paid usually in two equal installments ( 31 January and 31 July).
DEADLINE FOR SELF-ASSESMENT TAX PAYMENTS
- if sent a tax return by 31 October -> need to pay by 31 January
- If taxpayer is due the deadline for making a second payment on account is 31 July
- If taxpayer received their tax return after 31 October, they must complete and return
to HMRC within 3 months.
Self-employed traders can deduct expenses which would not be allowable to employed
workers.
Personal allowance
The annual income a person can earn before they start paying income tax.
2018-2019 -> £ 11,850
2019-2020 -> £ 12,500
If income is over £100,000 -> it get’s reduced
It cannot be carried over.
,EXAMPLE
Income is £110,000
Income - income limit = £110,000 - £100,000 = £10,000
Deducted by 2 to give a reduction to personal allowance -> £10,000 : 2= £5,000
Personal allowance = £ 12,500 - £5,000 = £7,500
2018-2019 -> £123,700
2019-2010 -> £125,000, reduced to nill
Personal allowance - £12,500
20% up to £37,500
40% up to £37,500 - £150,000
45% on £150,000 +
TAXABLE INCOME NON-TAXABLE INCOME
- earnings from self-employment/partnerships - state benefits (disability living allowance,
- Pensions income bereavement payments, winter fuel payments,
- Interest on most savings housing benefits)
- Investment income - Income from tax exempt accounts
- Income from shares - Working tax credit
- Rental income - Premium bond wins
- Income from a lodger over a certain amount - The first 28 weeks of incapacity benefit
- Income from a second property - Maternity allowance
- Income paid from a trust - War widow’s pension
- State benefits (job seeker’s allowance, incapacity
benefit from week29)
Married couple’s allowance - an amount that is taken off someone’s tax bill. If they don’t pay
tax or if their tax bill isn’t high enough to use up all of their married couple’s allowance, they can
transfer any unused allowance to their spouse/civil partner who can claim at the end of the year.
- taxpayer was married before 5.12.2005 and at least one spouse was born before 06.04.1935,
either partner can calim married couple’s allowance, but the actual amount of relief given
depends on the husband’s income. HMRC reduce their tax bill by 10%
- taxpayer was married after 5.12.2005 and at least one spose was born before 06.04.1935, the
person with the higher income can claim allowance HMRC reduce their tax bill by 10%.
2018-2019 -> £28,900
2019-2020 ->£29,600
Allowance is 2018-2019 -> £8695 - £3360
Allowance is 2019-2020 -> £8915 - £3450
Marriage allowance - introduced from 6 April 2015 allows a perosn whose income is lower than
the personal allowance and whose spouse/civil partner pays income tax at the basic rate, to
transfer up to £ 1,190 of their remaining Personal Allowance in the 2018-2019 tax year and up to
£1,250 in the 2019-2020 tax year.
Maintenance Payment relief - reduces a person’s tax if they make maintenance payments to
their ex-spouse/former civil partner, if:
- the taxpayer or their ex was born before the 6 April 1935
, - They are separated/divorced or the civil partnership has dissolved and they’re making the
payments under a court order
- The payments are for the maintenance of an ex-spouse or former civil partner or for the
taxpayer’s children who are under 21
2018-2019 tax year:
- 10% of £3,360 (£336) - if taxpayer makes payments of £3,260 or more a year
- 10% of the amount the taxpayer pays during the year if less
2019-2020 tax year -> £3,450
Cannot claim reliefs for voluntary payments.
Blind’s person allowance - if a person is certified blind and is on a register and are unable to
perform any work for which eyesight is essential, Blind Person’s Allowance is added to their tax-
free personal allowance. Not applicable to deaf people.
2018-2019 -> £2,390
2018-2019 -> £2,450
Personal saving’s allowance - taxpayers do not have to pay tax on certain amounts of their
savings income received from banks.
0% up to £5000
TAX RATE INCOME BAND 2019-2020 PERSONAL SAVINGS
ALLOWANCE
Basic 20% Up to £37,500 Up to £1000
Higher 40% £37,501 - £150,000 up to £500
Additional 45% Over £150,000 No allowance
Dividend allowance - individuals do not have to pay tax on a certain amount of dividend they
receive.
TAX RATE INCOME BAND 2019-2020 PERSONAL SAVINGS
ALLOWANCE
Basic 7,5% Up to £37,500 Up to £2000
Higher 32,5% £37,501 - £150,000 Up to £2000
Additional 38,1% Over £150,000 Up to £2000
Interest payments on qualifying loans - tax relief is available for interest on loans where the
borrowed money isused for certain specific purposes. A qulifying loan may have its interest
payments deducted.
- purchasing shares or financial loans to a close company in which the taxpayer owns more than
5% of the ordinary share capital and the taxpayer works for a greater part of their time in
management and conduct of the company’s business
- Acquiring share capital in an employee-controlled company in which the taxpayer is a full time
employee
- Acquiring a share or financing loans to a cooperative which is used wholly and exclusively for
the purposes of its business
Tax which is sufered directly by the taxpayer, income tax, capital gains tax
DIRECT TAX and corporation tax. Tax on income and cash received.
INDIRECT TAX Tax which is passed on to the final consumer, VAT and custom duties.
Tax on expenditure.
INCOME TAX
Income -> if there is an element of recurrence (salary or partnership profit share received each
month, interest paid on bank or building society every quarter)
Capital gains tax -> taxes the profit made from disposing of an asset
Who pays income tax?
- Individuals, sole traders
- Partnerships ( partners are individually responsible for the tax due on their share of partnership
profits)
- Personal representatives ( who pay the deceased’s outstanding Incom Tax nad Income Tax
chargeable during the administration of an estate)
- Trustees (who pay Income Tax on the income produced by the trust fund)
Tax year = 6 April - 5 April
Collection
Income tax is collected in different ways depending on the type of income and whether someone
is employed, self-employed or not working.
- PAYE (Pay as you earn) -> employees and those receiving company pensions. It is deducted
from the salary along with National Insurance (deduction of tax at source) .
- Self assesment -> the self-employed are responsible for making the relevant payment to
HMRC.
- Sole traders and partnerships , but not companies, are required to register for self-assesment.
It is paid usually in two equal installments ( 31 January and 31 July).
DEADLINE FOR SELF-ASSESMENT TAX PAYMENTS
- if sent a tax return by 31 October -> need to pay by 31 January
- If taxpayer is due the deadline for making a second payment on account is 31 July
- If taxpayer received their tax return after 31 October, they must complete and return
to HMRC within 3 months.
Self-employed traders can deduct expenses which would not be allowable to employed
workers.
Personal allowance
The annual income a person can earn before they start paying income tax.
2018-2019 -> £ 11,850
2019-2020 -> £ 12,500
If income is over £100,000 -> it get’s reduced
It cannot be carried over.
,EXAMPLE
Income is £110,000
Income - income limit = £110,000 - £100,000 = £10,000
Deducted by 2 to give a reduction to personal allowance -> £10,000 : 2= £5,000
Personal allowance = £ 12,500 - £5,000 = £7,500
2018-2019 -> £123,700
2019-2010 -> £125,000, reduced to nill
Personal allowance - £12,500
20% up to £37,500
40% up to £37,500 - £150,000
45% on £150,000 +
TAXABLE INCOME NON-TAXABLE INCOME
- earnings from self-employment/partnerships - state benefits (disability living allowance,
- Pensions income bereavement payments, winter fuel payments,
- Interest on most savings housing benefits)
- Investment income - Income from tax exempt accounts
- Income from shares - Working tax credit
- Rental income - Premium bond wins
- Income from a lodger over a certain amount - The first 28 weeks of incapacity benefit
- Income from a second property - Maternity allowance
- Income paid from a trust - War widow’s pension
- State benefits (job seeker’s allowance, incapacity
benefit from week29)
Married couple’s allowance - an amount that is taken off someone’s tax bill. If they don’t pay
tax or if their tax bill isn’t high enough to use up all of their married couple’s allowance, they can
transfer any unused allowance to their spouse/civil partner who can claim at the end of the year.
- taxpayer was married before 5.12.2005 and at least one spouse was born before 06.04.1935,
either partner can calim married couple’s allowance, but the actual amount of relief given
depends on the husband’s income. HMRC reduce their tax bill by 10%
- taxpayer was married after 5.12.2005 and at least one spose was born before 06.04.1935, the
person with the higher income can claim allowance HMRC reduce their tax bill by 10%.
2018-2019 -> £28,900
2019-2020 ->£29,600
Allowance is 2018-2019 -> £8695 - £3360
Allowance is 2019-2020 -> £8915 - £3450
Marriage allowance - introduced from 6 April 2015 allows a perosn whose income is lower than
the personal allowance and whose spouse/civil partner pays income tax at the basic rate, to
transfer up to £ 1,190 of their remaining Personal Allowance in the 2018-2019 tax year and up to
£1,250 in the 2019-2020 tax year.
Maintenance Payment relief - reduces a person’s tax if they make maintenance payments to
their ex-spouse/former civil partner, if:
- the taxpayer or their ex was born before the 6 April 1935
, - They are separated/divorced or the civil partnership has dissolved and they’re making the
payments under a court order
- The payments are for the maintenance of an ex-spouse or former civil partner or for the
taxpayer’s children who are under 21
2018-2019 tax year:
- 10% of £3,360 (£336) - if taxpayer makes payments of £3,260 or more a year
- 10% of the amount the taxpayer pays during the year if less
2019-2020 tax year -> £3,450
Cannot claim reliefs for voluntary payments.
Blind’s person allowance - if a person is certified blind and is on a register and are unable to
perform any work for which eyesight is essential, Blind Person’s Allowance is added to their tax-
free personal allowance. Not applicable to deaf people.
2018-2019 -> £2,390
2018-2019 -> £2,450
Personal saving’s allowance - taxpayers do not have to pay tax on certain amounts of their
savings income received from banks.
0% up to £5000
TAX RATE INCOME BAND 2019-2020 PERSONAL SAVINGS
ALLOWANCE
Basic 20% Up to £37,500 Up to £1000
Higher 40% £37,501 - £150,000 up to £500
Additional 45% Over £150,000 No allowance
Dividend allowance - individuals do not have to pay tax on a certain amount of dividend they
receive.
TAX RATE INCOME BAND 2019-2020 PERSONAL SAVINGS
ALLOWANCE
Basic 7,5% Up to £37,500 Up to £2000
Higher 32,5% £37,501 - £150,000 Up to £2000
Additional 38,1% Over £150,000 Up to £2000
Interest payments on qualifying loans - tax relief is available for interest on loans where the
borrowed money isused for certain specific purposes. A qulifying loan may have its interest
payments deducted.
- purchasing shares or financial loans to a close company in which the taxpayer owns more than
5% of the ordinary share capital and the taxpayer works for a greater part of their time in
management and conduct of the company’s business
- Acquiring share capital in an employee-controlled company in which the taxpayer is a full time
employee
- Acquiring a share or financing loans to a cooperative which is used wholly and exclusively for
the purposes of its business
