Income Tax & Self-Assessment Tax Return Advice
How is Income Tax Calculated?
Income tax is paid on your income, but there are a variety of rates, allowances and reliefs applicable depending on the type and amount of income involved.
Income is split into bands: currently, the Basic Rate Band is the first £31,785, the Higher Rate Band is the next £118,215, and the Additional Rate Band is above £150,000.
Taxpayers are generally entitled to a Personal Allowance, currently £10,600 for taxpayers under 75. This allowance is reduced by £1 for every £2 of income the taxpayer has over £100,000, meaning that for 2015/16, no personal allowance will remain for incomes over £121,200. From April 2016 there will also be a £1,000 savings allowance (£500 for Higher rate taxpayers) and a £5,000 dividend allowance, but it is not yet fully clear how these will be implemented.
Income is divided into 3 different types, with different tax rates applying to that type.
Dividend Income: This currently has a complicated and anachronistic tax credit system, giving effective rates of 0%, 25% and 30.56% on dividends for the 3 tax bands. This system is changing from April 2016 so that the rates become 7.5%, 32.5% and 38.1%.
Savings Income: Rates of 20%, 40% and 45% for the 3 tax bands. There is also a savings rate of 10% for the first £5,000 of income, but this is reduced by any non-savings income that the taxpayer has.
Non-savings Income: Rates of 20%, 40% and 45% for the 3 tax bands. Non-savings income includes all income not included in the other bands, including employment income, trading profits, rental income, trust income, pension income and some state benefits.
How is Income Tax Deducted?
Income tax may be deducted at source, e.g. from salaries and some pensions through Pay As You Earn (PAYE), or by banks on interest payments.
Self Assessment Tax Returns
Where this is not sufficient, a taxpayer must register for income tax self-assessment and submit an annual Self-Assessment Tax Return (SATR), which declares all the taxpayer’s income and capital gains for the tax year (6 April to following 5 April) and calculates the tax liability on the income and gains. The liability is reduced for any tax previously deducted.
The SATR must be submitted to HMRC, and any outstanding tax paid, by 31 January following the end of the tax year. Payments on account of 50% of the income tax not deducted at source in the previous year are due on 31 January during a tax year and 31 January immediately following the tax year.
Self-Assessment Tax Return Service
Tax Innovations has many years of experience in the preparation and submission of self-assessment tax returns, and of ensuring that all available exemptions and reliefs are claimed.