Income tax is a tax levied on the income of individuals and businesses in England. It is a major source of revenue for the government and is used to fund public services such as healthcare, education, and infrastructure. Understanding income tax in England is important for taxpayers to ensure they are paying the correct amount of tax and avoiding penalties.
Who Pays Income Tax in England?
In England, income tax is paid by individuals who earn above a certain threshold. The current threshold for the tax year 2021/22 is £12,570. This means that if an individual earns less than £12,570, they do not have to pay income tax. However, if an individual earns more than this amount, they will be required to pay income tax on their earnings.
Income Tax Bands in England
Income tax in England is calculated based on income tax bands. There are currently four income tax bands in England:
- Basic rate: 20% on income between £12,571 and £50,270
- Higher rate: 40% on income between £50,271 and £150,000
- Additional rate: 45% on income above £150,000
- Starting rate for savings: 0% on savings income up to £5,000 (in addition to the personal allowance)
How is Income Tax Calculated in England?
To calculate income tax in England, the following steps are taken:
- Deduct any tax-free allowances (such as the personal allowance) from the total income
- Calculate the tax due on the remaining income using the appropriate income tax band
- Add any other taxable income (such as dividends or rental income) to the total income and repeat the above steps
- Add up the total tax due on all income sources to get the final income tax bill
How is Income Tax Paid in England?
Income tax in England is usually paid through the PAYE (Pay As You Earn) system. This means that income tax is deducted from an individual’s salary before they receive it. The amount of income tax deducted is based on the individual’s tax code, which is calculated by HM Revenue and Customs (HMRC) based on their income and personal circumstances.
For individuals who are self-employed or have other sources of income (such as rental income), they may be required to complete a self-assessment tax return. This involves declaring all sources of income and calculating the amount of income tax due. Self-assessment tax returns must be submitted to HMRC by 31 January following the end of the tax year.
What Happens if Income Tax is Not Paid?
If income tax is not paid on time, HMRC may charge penalties and interest. The amount of the penalty depends on the amount of tax owed and how late the payment is. In some cases, HMRC may also take legal action to recover the unpaid tax.
Understanding income tax in England is important for taxpayers to ensure they are paying the correct amount of tax and avoiding penalties. Income tax is calculated based on income tax bands and is usually paid through the PAYE system. Self-employed individuals and those with other sources of income may be required to complete a self-assessment tax return. If income tax is not paid on time, HMRC may charge penalties and interest, and may take legal action to recover the unpaid tax.