It’s a sad fact of life that no matter where you live in the world, you’re going to have to pay tax to someone. Many countries have reciprocal agreements with the UK to avoid double taxation issues. Thankfully, the tax rules in London are somewhat less complicated than other areas of the world.
Of course, depending on your employment, assets and other income, you might choose to employ a tax professional to handle your taxation affairs. This can take away any concerns that you might not be fully complying with UK law.
There are many such companies, including Jeffcote Donnison and Francis Clark. If you choose to use a company or accountant to take care of your financial and taxation affairs, it goes without saying that you should first verify that they are fully qualified and reputable to carry out such a service.
UK Government tax requirements
Very simply, as of January 2016, the summary of paying tax in the UK is as follows:
For those coming to live in the UK, any income you have will be eligible for tax.
Income includes the following:
- Your wages (salaried and self-employed)
- Any benefits
- Your Pension (state, company and personal)
- Interest on your savings
- Income from shares (dividends)
- Rental income
- Income paid from a trust
Everyone has a personal allowance. This is the amount of income you are allowed to receive before you pay tax. Currently the standard personal allowance is £10,600. This could be larger for those born before April 6, 1938 or for those in receipt of a blind person’s allowance.
For those who earn over £100,000, the personal allowance is less. Income tax is paid on any amount over your personal allowance.
Income tax rates
The amount of income tax you pay on the amount over and above your personal allowance depends on the size of your income. This is as follows:
For those earning between £0 to £31,785 per annum, the income tax payable is a ‘basic rate’ of 20%. So, if you have the standard personal allowance, you pay 20% on the amount you earn that’s over £10,600.
For those earning between £31,786 to £150,000, the income tax payable rises to 40%. So, for those on a standard personal allowance you start paying this rate on your income over £42,385 (you pay the standard 20% rate on the rest).
For those earning over £150,000 there is an additional rate of 45%.
Income tax on savings and dividends
All savings interest is automatically taxed at 20%. Those on low incomes may be eligible for some tax back, and those on a higher tax rate might have to pay more.
National Insurance is a payment that is made by everyone living in the UK to pay for social security benefits. If you live in the UK you’ll be required to apply for a National Insurance number. You can apply on arrival and must have the right to work or study in the UK to receive one.
How to pay your tax and National Insurance
Depending on your work status, there are different methods of paying your taxes.
Salaried work — For those in a salaried position, it’s highly likely that you’ll have tax deducted at source by your employer. This is known as Pay As You Earn – or simply, PAYE. Whilst your employer does all the calculations, it is still up to you to check that the deductions made are correct.
Self-employed — If you are self-employed, then it will be necessary for you to fill in a self assessment form once a year. This is done after the tax year ends (on April 5th) and must be submitted by January 31st of the following year. So for example, for the year April 2014 to April 2015, your self-assessment for must be submitted by January 31st, 2016.
Who needs to complete a self-assessment tax return?
If you are in a regular salaried position then your tax will be deducted from your wages. However, if any one or more apply to you (whether or not you have salaried employment), then you will need to complete a self-assessment tax return:
- Any type of self-employment.
- You receive £2,500 or more in untaxed income. For example, from renting a property or from investments or savings.
- Your savings and investment income was £10,000 or more before tax.
- You made profits from activities such as a second home or selling shares.
- You are or were a company directory (unless for a non-profit organization and you didn’t receive any pay or benefits.)
- You or your partner’s income was more than £50,000 and one of you claimed Child Benefits.
- You receive income from abroad.
- You received dividends from shares and you’re a higher or additional rate taxpayer.
- Your income was greater than £100,000.
- You were a trustee of a trust or registered pension scheme.
There may be times when you end up making overpayments to HMRC (Her Majesty’s Revenue & Customs). There are many circumstances in which this might happen, but can include the following:
- If you are working more than one job at the same time
- Have changed jobs many times
- Have been without a job for a period of the tax year
- Had a temporary tax number
- Are about to leave the United Kingdom
If you think you might be eligible for a tax refund, then it will be necessary to contact the tax office and complete various paperwork. If you are owed money, then it will either be refunded via your wages (through the process of changing your tax code) or you may receive it by check or bank transfer.
The official government website provides all the information you need to understand the British tax system. In addition, free help can be found at Citizens Advice – either online or in person. While it is not mandatory for many people to employ an accounting firm to handle their financial affairs, it can be the answer if you don’t have the time or inclination to deal with it yourself.
However, once you come to grips with what is taxable and what isn’t, completing your own tax return is actually quite a simple (albeit time consuming) task.