Income tax is a tax that is levied on individuals or entities (trading companies) that receive income during the financial year. The amount of tax payable is based on the amount of taxable income earned. Taxable income includes earnings from employment, self-employment, pensions, investments, and property rentals.
In the UK, income tax is collected by HM Revenue and Customs (HMRC). Individuals are responsible for paying their own income tax, and companies are responsible for paying corporation tax on their profits. Income tax is typically paid in instalments throughout the year, or as a lump sum at the end of the financial year. Self-assessment is used to calculate how much tax an individual owes. Those who do not pay their income tax on time may be liable for interest and penalties.
How is Income tax calculated?
Income tax is a tax levied on individuals or households that receive income from wages, salaries, investments, or other sources. In the United Kingdom, income tax is charged at different rates depending on the amount of income earned.
For example, individuals who earn less than *£12,570 per year are exempt from income tax, while those who earn between £12,571 and £50,270 per year are taxed at 20%. Higher-earning individuals are taxed at 40% on incomes between £50,271 and £150,000, and at 45% on incomes over £150,001. Income tax is used to fund a variety of public services in the UK, such as healthcare, education, and infrastructure. In addition to income tax, individuals may also be liable for other taxes such as council tax and National Insurance.
*this figure is based on the Income Tax rates and bands 6 April 2022 to 5 April 2023.