Are you utilizing Personal Tax to make money?
Personal tax is the tax that you pay on your income. This tax is largely related to your employment, however, there are other types of earnings that can also be taxed and for which you may owe money to the well-known creditor HMRC. In this article, we run through everything you need to know about personal tax including tax thresholds, the types of incomes that are taxable, tax relief, tax credit, and that all-important tax return.
What can I be taxed on?
Before getting your head around the amount of tax you owe to the creditor HMRC, you need to get to grips with what income you can be taxed on as not all types of income are taxable, such as certain welfare benefits and specific types of savings and investments. If you have a mirage of different incomes it is a good idea to get a Tax accountant on board to ensure that you get your tax bill right and avoid becoming a debtor to HMRC.
Personal income tax needs to be paid on the following:
- Employment – if you are employed by someone you should pay your tax automatically and will see the amount deducted on your payslip
- Profits you make when you are self-employed
- Money received from rental income
- Benefits received from your job such as a company car
- Some welfare benefits
- Interest from savings or a trust
- Income from dividends
The amount of tax you pay depends on the amount of income you have earned. The majority of people will have a personal allowance which is the amount you can earn before paying tax, and if you earn below a certain amount you will not be required to pay tax.
How do you pay income tax?
Working out your personal tax might seem daunting but for most of us, it is all sorted through the Pay As You Earn (PAYE) system. On your pay-slip, you will see your tax contributions as well as your National Insurance payment which are both taken out automatically. The amount you pay is determined by your tax code which informs your employer how much to deduct from your earnings each month.
If you fall into the slightly trickier category – either your finances are a little more complicated (as you are on a high income or have multiple income streams) or you are self-employed you will need to complete your annual self-assessment tax return.
How do I complete the self-assessment tax return?
Working out your personal tax and completing the self-assessment tax return can be a real headache, and the last thing you want is to become a debtor to HMRC. Getting a tax accountant on board to help complete the tax return for you can save you lots of time and effort, as well as helping to prevent receiving unnecessary fines if you complete it wrong or late.
Employing an accountant to help with your self-assessment tax return will not only make sorting out your personal tax much easier, but it can even help save you money in the long run as they can advise you on potential tax relief opportunities. You can also claim the cost of the accountant’s fees as a tax reduction. So, you’ve got nothing to lose.
How do I get tax relief?
Tax relief can be claimed for certain expenses that are incurred as part of your employment. These could be related to costs related to running your business such as utility bills (e.g. internet and electricity bills), staff costs, equipment and travel expenses.
While tax reliefs are there to reduce your tax liability, it can be incredibly complicated to work out your entitlements and many who are self-employed don’t make the most of these benefits. Your personal tax accountant can help you to manoeuvre the tax system and make sure that it works to your advantage.
What are tax credits?
If you are on a low income, then you may be entitled to working tax credits. This is money, provided by the government, that is there to assist working people who are on small incomes. Your eligibility depends on the number of hours you work per week, and the amount that you earn. The basic amount of working tax credit is around £1,960 a year but the amount you receive depends on individual circumstances. Claiming working tax credit can be done via a claim form on the www.gov.uk website.
What to do if you can’t pay your bill to HMRC
Getting a bill in the post from the creditor HMRC can be a scary thing if you can’t pay it. It is important to not get into the position of a debtor and suffer in silence, there are things that can be done. Make sure you get in touch with HMRC immediately and explain your situation, this can be done through your tax accountant or you can contact them directly. HMRC may give you more time to pay your bill or offer the option of paying in instalments to spread out the financial burden.
If you ignore the problem, HMRC may take the money directly from your account, there is also the option that they may take you to court and it is possible that you will incur further charges through fines.
Tax doesn’t have to be taxing
As the well-known saying goes, the tax doesn’t have to be taxing. Often, your personal tax contribution will be sorted out by your employer so it is very little you need to do (except for making sure you are on the right tax code). If your situation is a little more complicated (if you are on a high income or are self-employed) it is a good idea to get a personal tax accountant on board so that your self-assessment tax return is filled out accurately and on time. An accountant in London can also make sure that you pay the right amount of tax and that you make the most of any tax relief you are entitled to.