Happy new tax year!
Tax can be confusing at the best of times and people are often baffled by how it all works. Put simply, income tax is a tax you pay on your earnings – but you do not have to pay tax on all types of income.
You do need to pay income tax on things like:
- money you earn from working
- profits you make if you’re self-employed
- some State Benefits (e.g. Jobseekers Allowance, Carer’s Allowance)
- most pensions (e.g. State Pension, employer and personal pensions)
- rental income (i.e. if you own a house and rent it out)
As of 6 April 2018, the Personal Allowance will increase to £11,850.
On the plus side, you do not have to pay income tax on things like:
- National Lottery or premium bond wins
- interest on savings within your savings allowance
- Individual Savings Accounts (ISAs) and National Savings Certificates
- some State Benefits (e.g. housing benefit, child tax credit)
Most people in the UK have a ‘Personal Allowance’, which entitles them to a certain amount of tax-free income. This is the amount of money you will receive before you have to pay tax. Currently, the standard Personal Allowance is £11,500 (for the 2017/18 tax year) but as of 6 April 2018, this will increase to £11,850. This allowance is then translated into a tax code, but did you know that your personal tax code changes each year?
You can check your Income Tax online to see what your tax code is, how it is worked out and how much you are likely to pay. Your tax code will usually start with a number and end with a letter. For example,
- 1150L is the current tax code used for most people who have one job or a pension;
- 1185L is the code that will be used for 2018/19 tax year.
For the UK, each tax year starts on 6 April and ends on the 5 April the following year. Anyone who is required to file a tax return will receive a notice letting them know they need to do this for the year that has ended.
For further information on money and tax in general, visit www.gov.uk/browse/tax. There is also lots of useful information on other topics such as how to deal with HM Revenue & Customs, Inheritance Tax and National Insurance.