Income Tax

Accounting

by BizHelp24
19/10/2005

What is Income Tax?

Income tax is a tax on your income and is often paid through your employer whom will automatically deduct it from your pay each week/month. The tax is paid to the Inland Revenue. Employers will pay an employee's tax using the Pay As You Earn (PAYE) system.

There are no age 'rules' as to when a person has to start paying income tax. If you are earning - you have to pay the tax.

Those that are self-employed will commonly complete a self assessment form to calculate their income tax.

There is a personal allowance figure which allows an employee to earn a certain amount tax free. The personal allowance figure will vary depending on your circumstances and age (see tables below). There are also different tax bands which have different rates of tax depending on your salary (see tables below).

You can find more information about paying income tax by visiting our PAYE in the Small Business article

Income Tax 2007 / 2008 Rates

Income Tax Changes	2007/2008	2008/2009
Income Tax Allowances
Personal Allowance	5225	6035
Personal allowance for people aged 65-74	7550	9030
Personal allowance for people aged 75 and over	7690	9180
Blind person’s allowance	1730	1800

Allowances That Reduce Tax
Married couple’s allowance – aged under 75	6285	6535
Married couple’s allowance – aged 75 or more	6365	6625
Minimum amount of married couple’s allowance	2440	2540

Capital Gains Tax Annual Exempt Amount
Individuals etc:	9200	9200
Other trustees:	4600	4600

Inheritance Tax Threshold	300,000	300,000

Pension Schemes Earnings Cap (Since 6th April, this has been replaced by Lifetime and Annual allowance limits)	112,800(notional)	112,800 (notional)

Taxable Bands	2007/2008	2008/2009
Starting Rate
Income	up to 2230	up to 2320
Tax Rate	10%	10%

Basic Rate
Income	2231 – 34,600	2320 – 34,800
Normal Rate	22%	22%
Savings Rate	20%	20%
Dividends Rate	10%	10%

Higher Rate
Income	over 34,600	over 34,800
Normal Rate	40%	40%
Savings Rate	40%	40%
Dividends Rate	32.5%	32.5%