“Explore the intricacies of the United Kingdom’s tax system, vital for education, jobs, and immigration. Learn about income tax, capital gains tax, private residence relief, marriage allowance, and more. Stay informed about tax rates, bands, and business-related tax in the UK. Source: UK Government Website, Tax Regulations, G-20 Taxation Updates.”
United Kingdom ranking among the top 5 destination for education, jobs, or immigration needs special treatment for its tax systems which have left a deep imprint in our nation. Right now, it is in transition to get lifted from ex EU member to a promising and successful economic power to attract maximum investment, the best industries to flourish, and allow its best human talents, both internal as well as external to progress towards its set economic goals.
Its tax system, one of the oldest in the world needs special attention. Let us learn it together.
It is time for United Kingdom tax authorities to speak through their web site.
Income tax U.K. (United Kingdom)
The Government website
invites you to learn the basics. The current tax year is from 6 April 2023 to 5 April 2024.
Obviously, the one for year 2022-2023 ended recently and those who have not filed their returns have to follow the set procedure from the web site like usage of the online service to appeal a £100 late filing penalty, or file form SA370 to appeal any late filing or late payment penalty.
On what income does one pay income tax?
- Earnings from employment
- Profits one earns from self- employment including services sold on websites or apps.
- Some state benefits
- Grants and support payments made to any one or his/her business due to calamity like self-employment income support scheme, the Coronavirus job retention scheme, the small business grant fund or the retail, hospitality and leisure grant fund.
- The Test and Trace Support Payment in England (or the Self-isolation Support Payment in Scotland and the Self-isolation Support Scheme in Wales)
- Most of the pensions, including state pensions, company and personal pensions, and retirement annuities.
- Obviously, the rental income unless one is a live-in landlord and get less than the rent a room limit)
- Benefits one gets from job
- Income from a trust
- Interest on savings over one’s savings allowance.
But what about those income which does not attract tax?
- Trading allowance which is £1,000 of income fromself – employment.
- The first £1,000 of income fromproperty one rents unless one is using rent a room scheme.
- Attractive income from tax-exempt accounts, like individual savings accounts (ISAs), and national savings certificates.
- Dividends from company shares under one’s dividend allowance.
- Some tax benefits which are not taxable, premium bond or national lottery wins (Yes, repeating, some national lottery wins are tax – free; obviously, your tax consultant will help you)
- Rent one gets from a lodger in the house that’s below rent a room limit.
Use your personal tax account to check your records and manage your details with HM Revenue and Customs (HMRC).
How do I sign in or set up personal tax account?
Directions given in government web site may help.
“You can:
- check your Income Tax estimate and tax code
- fill in, send and view a personal tax return
- claim a tax refund
- check your income from work in the previous 5 years
- check how much Income Tax you paid in the previous 5 years
- check and manage your tax credits
- check your State Pension
- track tax forms that you’ve submitted online
- check or update your Marriage Allowance
- tell HMRC about a change of name or address
- check or update benefits you get from work, for example company car details and medical insurance
- find your National Insurance number
- find your Unique Taxpayer Reference (UTR) number
There’s a different service to file your Self-Assessment tax return or report and pay Capital Gains Tax on UK property.”
How does a tax payer start the process?
Government gate way password and user ID help one to get in there.
Usage of a valid UK passport, valid photo card driving license, copy of tax credit claim, if any made in the past, details from self- assessment tax return if made earlier, details of credit information like loans, credit card or home mortgage etc. with two of them at a time with national insurance number or post code for registration with government gate way are needed.
With one of the most attractive income tax rules, we are tempted to know the tax slabs, and other details.
Income tax rates and bands
The following table shows the tax rates one pays in each band if one has a standard personal allowance of £12,570.
Yes, I shall give details of income tax bands in Scotland separately.
| Band | Taxable income | Tax rate |
| Personal allowance | up to £12,570 | 0% |
| Basic rate | up to £12,571 to £50,270 | 20% |
| Higher rate | up to £50,271 to £150,000 | 40% |
| Additional rate | over £150,000 | 45% |
One does not get a Personal Allowance on taxable income over £125,140.
What are tax free state benefits which attracts the best human resources to U.K.
Parents learning allowance
You may be eligible for help with your learning costs if you’re a full-time student with children. This is called Parents’ Learning Allowance.
How much a tax payer gets depends on the household income.
The allowance:
-
- does not have to be paid back
- is paid on top of your other student finance
- will not affect one’s benefits or tax credit
- The amount eligible under the above head is as under:
- Depending on the household income, in the 2023 to 2024 academic year it could be between £50 and £1,915 a year.
- It’s usually paid in 3 instalments direct to one’s bank account, one at the start of each term.
- Parents’ Learning Allowance is paid on top of other student finance and does not have to be paid back.
Like yourself, I am keen to learn about tax bands in Scotland.
What will one pay in Scotland?
What you’ll pay being a tax payer?
The table shows the 2022 to 2023 Scottish Income Tax rates you pay in each band if you have a standard Personal Allowance of £12,570. One does not get a personal allowance if the earnings are over £125,140.
| Band | Taxable income | Scottish tax rate |
| Personal Allowance | Up to £12,570 | 0% |
| Starter rate | £12,571 to £14,667 | 19% |
| Basic rate | £14,668 to £25,296 | 20% |
| Intermediate rate | £25,297 to £43,662 | 21% |
| Higher rate | £43,663 to £150,000 | 41% |
| Top rate | over £150,000 | 46% |
More important information from government’s web site.
What about capital gains tax?
One pays Capital Gains Tax on the gain when it is sold or disposed of. We learn that:
- One pays capital gains tax if the transactions occur on personal possessions worth £6,000 or more, apart from your car.
- Property that is not main home for residence
- One’s main home if it was let out, used for business, or it is very large.
- Shares that are not in an ISA or PEP.
- Business assets.
- Please do check up with tax authorities whether to any capital gains tax on crypto assets when they are sold or given away.
- The above assets are also known as chargeable assets.
One comes across gift as a tax item. Is it so?
Some gifts are exempt from Inheritance Tax especially those made more than 7 years before the person died. However, not all gifts are exempt.
Most gifts a person makes during their lifetime — except gifts covered by an exemption — are called potentially exempt transfers. This is because a gift is exempt from Inheritance Tax if the person survives for 7 years after giving it.
Tax one pays when the house is sold? Does one pay capital gains tax on sale of one’s house in which he/she lives?
Titled under private residence relief, the following instructions are very interesting and useful if the tax payer wants to sell his house in which the living is done?
Tax payer does not pay capital gains tax when he/she sells the house in which living was done all the time. The home should not have been used for any business purposes. Neither it could have been rented out or the grounds including all buildings are more than 5000 square meters.
With the above conditions being met, under “Private residence relief” no capital gains tax will be paid.
This is a welcome measure when one lives in the same house, decides to move to some other area or have a new one for better comforts.
More information for an un- satiating mind.
- Marriage allowance allows one to transfer £1,260 of the Personal Allowance to one’s husband, wife or civil partner. It’s free to apply for Marriage Allowance. This can reduce the tax by up to £252 every tax year (6 April to 5 April the next year).
- Expenses which you claim if you are self- employed: Let me quote from the government website with some explanations – office costs include stationery, or phone expenses.
- Travel costs which may include fuel, parking, train, or bus fares.
- Expenses used for uniforms for employees.
- Obvious expenses like payment of salary for employees, or subcontractor costs.
- Simple to understand items like stock, raw material costs, bank expenses, insurance cost for business or costs involved in heating, lighting, advertising, or marketing, web-cost.
- HRD costs like training, refresher courses etc.
It is understandable that one can’t claim expenses as well as avail £1,000 tax-free ‘trading allowance’.
Let us have some more information on business related tax.
What does one claim as capital allowances?
By using traditional accounting, one can claim as capital allowances on buying of equipment, machinery, business vehicles like cars, vans, or lorries.
If one uses an asset personally as well as for business purposes, that proportion of expenses for business gets duly recognized for business.
With Covid related developments, working from home with proportionate share of expenses for business purposes gains importance. Some of them of prominence can be heating, telephone/internet expenses, rent, electricity, mortgage interest on property etc.
The website of the government of U.K. contains 45 items of business-related ones for easy understanding for medium and big business.
What about accounting period for corporation tax?
Corporate tax return covers the accounting period for corporation tax. Yes, I agree with you that it can’t be longer than 12 months and the same as financial year covered by the company or any association’s annual accounts. The accounting period defines timelines for paying corporation tax by sending or filing a company tax return.
Conclusion
The purpose of this article is to give you a bird’s view of the simple tax system in U.K. which houses one of the top economies with business going back to centuries. Most of the Indian systems/business/legal models simply mirror UK’s economy and have shown enormous growth. Another article was recently published in taxguru.in dealing with the tax aspects of business in U.K. which was done in 2022 and no change was noticed since then.
One can easily refer to the detailed instructions available in the government web site for any serious clarifications.
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Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional 0%
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