Income Tax is a tax on income. Not all income is taxable, and you’re only taxed on ‘taxable income’ above a certain level. Even then, there are other reliefs and allowances that can reduce your Income Tax bill – and in some cases mean you’ve no tax to pay.
What counts as taxable income?
Taxable income includes:
- earnings from employment
- earnings from self-employment
- most pensions income (State, company and personal pensions)
- interest on most savings
- income from shares (dividends)
- rental income
- income paid to you from a trust
The allowances and tax bands are reviewed each year and changes, which usually apply from the beginning of the following tax year, are announced during November or December of the preceding year.
Tax on company benefits
If you’re employed and you receive non-cash benefits from your employer such as company cars; fuel; living accommodation you will have to pay tax on them.
For further information on taxable / non-taxable income click on https://www.gov.uk/income-tax
Tax-free allowances
Nearly everyone who is resident in the UK for tax purposes receives a ‘Personal Allowance’, which is an amount of taxable income you’re allowed to earn or receive each year tax-free.
Personal Allowances
| Personal Allowance | 2013-2014 Tax Year | 2014-2015 Tax Year |
|---|---|---|
| Born after 5th April 1948 | £9,440 | £10,000 |
| Born between 6th April 1938 and 5th April 1948 | £10,500 | £10,500 |
| Born before 6th April 1938 | £10,660 | £10,660 |
You’re born before 6th April 1948
If your income is between £26,100 and £100,000 in the 2013 to 2014 tax year, your personal allowance goes down by £1 for every £2 of income above £26,100, to a minimum personal allowance of £9,440.
You may also be able to claim Married Couple’s Allowance –
Married Couples Allowance could reduce your tax bill by £304 to £791.50 a year
You can claim Married Couples allowance if all of the following apply:
- You’re married or in a civil partnership
- You’re living with your spouse or civil partner
- One of you was born before 6th April 1935
For marriages before 5th December 2005, the husband’s income is used to work out Married Couples Allowance. For marriage and civil partnerships after this date it’s the income of the highest earner.
Your income is over £100,000
For every £2 your income is above £100,000, your personal allowance goes down by £1. If your income is high enough, this can reduce your Personal Allowance to zero.
Blind Person’s Allowance
Blind Persons Allowance means you can get an extra amount of income tax free each year.
For the tax year 2013 to 2014 the allowance is £2,160 and for 2014 to 2015 £2,230
Eligibility
England & Wales
If you’re registered blind with the local council you can claim Blind Persons Allowance
Scotland and Northern Ireland
If you’re unable to perform work for which eyesight is essential you can claim Blind Persons Allowance
Dedicated HMRC helpline for blind person’s allowance – 0845 366 7887
Income Tax rates and bands
Taxable Bands
| 2013-2014 Tax Year | 2014-2015 Tax Year | |
|---|---|---|
| Basic Rate 20% | £0 – £32,010 | £0 – £31,865 |
| Higher Rate 40% | £32,011 – £150,000 | £31,866 – £150,000 |
| Additional Rate 45% | Over £150,000 |
Income Tax on savings interest
Currently savings interest is automatically taxed at 20%. But if you are on a low income you may be able to get the interest tax free or get half the tax repaid. From April 2015 the 10% starting rate of tax for savings is being replaced by a new 0% rate to provide support for the lowest earners. The 0% will apply on savings income between £2,880 to £5,000. As a result, anyone with a total income of less than £15,500 will not pay tax on their savings.
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