Income Tax

This article is about income tax on the one hand. On the other hand, it will tell you some ways to reduce your income tax bill. 

Although income tax plays an important role in the national economy of the country, it often becomes a burden for the taxpayers. The main reason for this is the vague idea about income tax. 

So here we will discuss paying income tax and how to deduct income tax in detail. Finally, there will be a summary at the very end. Income tax and different ways to cut the tax bill 

What is income tax? 


It is better to say at the outset that income tax is a tax if you reach the amount of taxable income. It was first introduced by the then Prime Minister William Pitt.  In fact, he brought this tax bill to cover the cost of the Napoleonic War in 1799.  

Furthermore, we know that in the UK a tax year starts from 6 April to the following 5 April and it is collected by HM revenue.  

You must have a National Insurance number (NI). You also need a tax code for paying a tax bill. Here's what you need to know before you file a tax bill: 
  1. Tax band 
  2. Taxable income 
  3. Income tax rate    

Income tax and different ways to cut the tax bill


Taxable income amount

Basic £12501 to £50,000 your tax is payable 20%  Similarly, if your level crosses that amount, then it will be double which is called a higher rate starting from £50,000 to £150,000.  On the other hand, you have to pay an additional rate of 5% along with a higher rate if your taxable income is more than £150,000. 

For example, if you earn £150,001 your rate will be 40% plus a 5% additional rate. So it will be altogether 45%. However, the Tax band in Scotland is slightly different.    

Taxable income sources

If you earn money from the following sources, you will have to pay income tax. They are as follows; 

  • Work-related income (bonuses, commissions, tips and so on) 
  • Professional pension received from a former employer 
  • Income tax on money earned from savings (bank and building society accounts, credit unions, National Savings and Investments, government and company bonds, life annuities, unit trusts, open-ended investment companies and investment trusts, and so on)
  • Other earnings on which income tax is applicable (income from trusts and settlements, profits from the sale of some goods and property, taxable gains on life insurance policies, etc.) 

Although rental income is not considered as earned income, it is taxable.   

Tax allowances and Tax relief

Getting income tax exemption largely depends on the type of income. We are trying to discuss this in detail below. 

Personal Allowance

Basically, you do not have to pay tax if your income is less than £12,500. However, if your income exceeds that amount you have to pay a tax bill.  

Marriage Allowance

You can claim a marriage or civil partnership allowance and the amount is £1250. However, the condition is that your income is 12500 or less. 

On the other hand, your partner's income is between 12,500 and 50,000.   If you earn £9,000, you do not have to pay income tax. Because income below £12,500 is not covered by income tax.  

On the other hand, your partner's personal allowance is 12,500 but he earns 15,000. In this case, he will be able to deduct 250 tax through a married couple allowance.  

For example, his total income is £15,000. Subtracting £12500 personal allowance from there, £3750 remains. So you have to pay tax for £3750. Like this, with this allowance, you can deduct a £250 tax bill.  

Married Couple’s Allowance

You can deduct a £351 tax bill per year through a married couple allowance. However, the condition is that you are married or a civil partner. Moreover, you are living together.  

Blind Person’s Allowance

There are also blind allowances for the visually impaired. This is how you can reduce your taxes. For more information, you can have a look at Blind Person’s Allowance.   

Other Allowances 

If the income earned from interest on savings is  £5,000, then you do not have to pay tax. Apart from this, you might get cut your tax bill if you work from home in the pandemic.  If you know how to reduce a hefty amount of income tax, it will be very helpful for you.    

How to make a self-assessment tax return file?

If you are self-employed, you need to register for a self-assessment tax return online and you will get a Unique Taxpayer Reference (UTR).  

Available income tax calculators in the markets

Nowadays you will find a number of income tax calculators or ready reckoners for tax bill calculation in the app store. They will keep records of the tax you pay. However, there are some websites where tax calculation is available.   

Conclusion

In the long run, it can be said that the rate of income tax varies in accordance with the income level. However, you will get tax relief if the amount of income is less than the basic rate. Moreover, various ways of deducting taxes have been discussed above. I hope you will benefit from the above discussion.

If you have any queries, please drop in the comment box.

Cheers!