Income Tax – Basic know how

Income Tax - Basic know how

Basis of Assessment:

Individuals are assessed to Income Tax on their income in a tax year. This tax year runs from 6 April to 5 April and is known as a ‘Tax Year’.

Personal Allowance:

Every taxpayer may be entitled to Personal Allowance, please follow the link to Personal Allowances available to self employed or an individual.

All person resident, ordinarily resident and domiciled in the UK is assessed to UK tax on their worldwide income.

Taxable Income:

All income is included gross in computation. There a number of sources of income e.g.

Income from employment and self-employment.
Income arising from ownership of property.
Investment income i.e. saving income.
Income should be accurately classed as each class has different tax rules.

If an income is received net, it should be grossed up to be included in income tax computation. Net income means that some tax has already been deducted at source e.g. Interest Income is always received net after deducting 20% tax.

Investment Income:

Sources include;

Savings Income – Usually Bank and Building Society interests.
Dividend Income- Usually received net of 10% tax credit, therefore, to be Grosses up to 100% (Dividend received * 100/90)
On dividends, 10% is notional amount which is assumed in income tax computation as the tax amount already deducted at source, however, this is the only notional amount and is not paid in real terms to HMRC, therefore, it cannot be claimed back.

To give the highest tax savings, personal allowances are deducted from income in the following order

1) Other Income- Employment Income/ Self Employment Income
2) Savings Income
3) Dividends

If you have any question or want to know further details and how our efficient tax planning can save you money please contact us.

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