Tax returns, tax refunds, PAYE, and Self Assessment: it’s difficult to navigate HMRC’s complicated tax system. Each time you believe you’ve got it figured out, the taxman throws a wrench in your plans. Furthermore, if you don’t keep up, he will give you considerable trouble. You could find yourself choking on fines, penalties, and worse if you don’t speak his language fluently.
Welcome to our straightforward guide to UK tax. A fast read should clear up any tax queries or concerns you may have.
Pay As You Earn (PAYE)
The Pay As You Earn (PAYE) system is how HMRC takes a cut of the money coming in for most UK workers. PAYE is a tax system in which your employer deducts a percentage of your earnings and sends it to the IRS. It’s not much fun, but it does mean you won’t have to fill out a slew of documents every time you have to pay taxes. The amount of money you lose each payday is determined by your tax code.
WHAT’S A TAX CODE?
A tax code is made up of numbers and letters that instruct your employers on how much money to deduct from your paycheck before giving it to you. You could find it on a variety of data sources – and it’s important to keep an eye on that because it really can update now and then. Keep an eye out for your tax code, all this information will also help students with their tax law dissertation topics.
- Your pay stubs, either P60 or P45.
- HMRC’s PAYE Coding Notice for the year.
- The pension advising slip is enclosed.
If you see a modification in your code that you don’t understand, seeking professional guidance from an accountant is a good option. A qualified accountant can explain everything in detail and help you figure things out if the taxman has crossed his wires. If you switch your identity or chose to work for yourself, for example, you’ll need to update your tax code to avoid getting into trouble with HMRC.
WHAT HAPPENED TO MY INCOME TAX?
The amount you pay to HMRC is determined by two factors: how much you earn as well as what your Allowance is. In your tax code, your Allowance is indicated. The taxman has no way of knowing how much you make up to that level each year.
After you’ve used up your Personal Allowance, the rest of your earnings are taxed at the Basic rate. Once you reach the upper limit, anything you earn after that is subject to a higher rate. The top end of a high-compensation earner may be taxed at the additional rate, which is even higher.
You’ll have to pay National Insurance contributions in addition to your income tax (NICs). Before you get paid, your employer takes care of this. If you’re on PAYE, you’ll be spending Class 1 NICs, which go towards things like your State Pension and a variety of other benefits you may need from time to time. Disparities in your payment history can cause problems in the future, but you can sometimes catch up by making voluntary contributions.
DO I NEED TO FILE TAX RETURNS AND WHAT IS A TAX RETURN?
The majority of PAYE employees never have to interact with the tax department personally to submit their regular taxes. HMRC, on the other hand, will occasionally wish to go a little further into your operations. Maybe you’ve got some extra money coming in from somewhere other than your PAYE employment, or maybe you’re hoping to get a tax refund. If this occurs, you may be required to file a Self Assessment tax return. People who must send returns include the following:
- Directors or partners of a company.
- People who earn more than £100,000 per year.
- Those who earn £10,000 per year via investments.
- People who earn money from a foreign source or a rental property.
- People who work for themselves.
- People who have over £2,500 in expenses and are demanding a tax refund.
- Anyone else from whom the taxman has demanded a return.
That last point is crucial. If HMRC sends you a letter requesting a tax return, don’t ignore it. Even if you’re certain it’s a mistake, leaving the taxman waiting is an even greater one.
WHAT HAPPENS TO MY TAXES IF I STOP WORKING?
When you leave employment, you are given a P45 form. This essentially informs you how much money you’ve made so far this tax year and how much of it HMRC has taken. You’ll also be able to double-check information like your NI number and tax code. The most important thing is to know what to do about it. If you don’t have another employment lined up right once or your new income is fewer than previously, you may be due a tax refund.
There’s also a P60, which is a very important form. This one contains the same information as the previous one, but it spans the complete tax year. If you don’t get one, you should make a fuss because collecting back the tax you owe will be more difficult without it.
WHERE DOES A MARRIAGE ALLOWANCE COME FROM? WOULD IT HELP ME SAVE MONEY?
The Marriage Allowance is a method of splitting your Allowances for both you and your partner (or civil partner). In other words, if one of you isn’t receiving the maximum benefit of your Allowance, they could transfer £1,190 to the other. For instance, if your spouse earns £10,000 per year and receives a Personal Allowance of £11,850, they are losing out on some of the benefits. In such a situation, they could transfer £1,190 of their remaining allowance to you, saving you over a thousand dollars in taxes. This equates to £238 each year (RIFT).
IS A PAYE TAX REFUND DUE TO ME?
There are a variety of reasons why the taxman might pick your and even cheap essay writers UK pocket. Perhaps you’ve taken a break from work or left the nation in the middle of the tax year. Perhaps you’ve been paying for business travel or other necessary expenses out of your pocket. You may have paid excessive tax over the year if your conditions have changed, such as transferring to a lower-paying job. It’s possible that you were assigned to the incorrect tax code. All of these factors, as well as others, may indicate that you are due a refund check from HMRC.
References
RIFT. The Beginners Guide To UK Tax. https://www.riftrefunds.co.uk/tax-rebates/uk-tax-refund-advice/the-beginners-guide-to-uk-tax/
