Income tax does what it says on the tin – it is the tax you pay on your income.
It is charged on most types of income such as:
- Salary and wages from your job
- Rent received from properties as a landlord
- Money you take from your pension
- Profits if you run a business
- Any interest and dividends from savings and investments
Most people qualify for a number of tax allowances which means you don’t usually pay Income Tax on all of the income you receive. Everyone has something called a Personal Allowance (the amount of money you are allowed to earn each tax year before you pay Income Tax). This could be bigger if you claim reliefs such as Marriage Allowance or could be considerably smaller if you owe tax from a previous tax year.
The Personal Allowance is currently £11,850 (2018/19) and the government will be increasing this to £12,500 in April 2019. This is the amount you can earn before you pay any Income Tax. For people earning over £100,000 the Personal Allowance reduces by £1 for every £2 over this amount. Therefore, if an individual earns £123,700 or more they effectively loose their tax-free allowance and pay Income Tax on everything they earn.
How much will I pay?
Income Tax Allowances
* Personal Allowance reduced by £1 for every £2 above income threshold until it reaches £0
** Personal Savings Allowance: £1,00 for basic-rate taxpayers, £500 for higher-rate taxpayers, £0 for additional-rate taxpayers
What is Income Tax used for?
HMRC collect Income Tax on behalf of the government in the United Kingdom. This money is then used to provide the funding for public services and public projects.
These things include the NHS, education and welfare systems, our roads, housing and rail services.
Click here to find out more from HMRC