illustration of two people carrying the word ‘tax’ on their shoulders

Tax Filing In The UK: All You Need To Know

The tax system in the UK is one of the most complex systems in the world. As a result, many people and businesses with complex tax structures turn to competent business advisors and chartered accountants for assistance with their financial concerns.

You must pay taxes if you live, work, or retire in the UK. However, based on your circumstances and tax residency status, the tax amount you pay varies. HMRC is in charge of the federal tax collection. According to studies, tax collections for 2020-2021 totalled above £580 billion.

Continue reading for a detailed insight into the taxation system of the UK.

Different Types of Taxes

You have to pay taxes to three different government levels: the devolved government, the federal government, and the local one responsible for collecting council taxes. Her Majesty’s Revenue and Customs (HRMC) is the governing body in the UK in charge of all matters related to tax, payments, and customs. They charge the following taxes:

  • Environmental Taxes
  • Excise and Custom Duties
  • VAT
  • Petroleum and Land Taxes
  • Corporation Tax
  • Property Tax
  • CGTs
  • Inheritance Tax
  • Income Tax

Role of HMRC

One of HMRC’smost important jobs is to ensure tax revenue channels via the Exchequer. They are in charge of ensuring that tax collecting activities abide by the laws. HMRC is also responsible for ensuring that money is available to fund public services.

They promote legal international trade, provide up-to-date economic statistics, and ensure the protection of fiscal policies of the UK at the border. HMRC also performs a vital role in ensuring that the UK tax system is simple and efficient and that filing and paying taxes is simple.

Nonetheless, hiring a business and tax counsellor to assist with tax planning may be advantageous for firms, particularly those with complex tax structures. The agency also provides targeted financial assistance to families that are having financial difficulties. They administer tax credits, child benefits, and statutory payments such as maternity and sick pay.

calculator, pen, and paperwork for income tax calculation

Significance of HMRC

We all know how crucial HMRC is when it comes to tax collection and ensuring that funds distribute evenly and smoothly for public services. The body also plays a significant role in preventing money laundering.

Many people believe in the organization’s ability to provide tax and payment advice and guidance. They keep a careful eye on all money-related activity across the country. They also help small businesses in the United Kingdom with their taxes and money.

It is the only authority in the country that conducts audits of both small and large firms. However, their audits dread even the well-established companies who prefer getting a professional on board.

Who Is Subject To Taxes?

Anyone who lives and works in the United Kingdom has to pay taxes. The amount, however, fluctuates depending on several circumstances, including your salary, domicile, tax residency status, and several other factors.

Add all your earnings and incentives together and subtract your allowance to find your tax liability. This is the taxable amount, the amount on which you have to pay taxes. Next, apply the tax rate, and you have the tax amount.

The tax-free level for the years 2022-2023 is £12,570, which means that all individuals with yearly income below this amount are exempted from tax payments. The UK records more than 30 million people filing taxes every year.

a typewriter typing tax return

Tax Rates in the UK

Tax rates in the UK are proportional. The one who earns more has to pay more to the government. After all exemptions and deductions, tax is levied on the entire income earned from various sources.

You do not have to pay anything if your yearly earnings are less than £12,570. If you earn anything between £12,571 and £50,270, the government charges a 20% tax on your earnings.

Yearly earnings in the bracket of £50,271 to £150,000 are subject to a 40% tax rate, and anything beyond £150,001 per year is subject to a 45% tax rate. Profits and saving interests are exempt from taxation for the residents of the UK.

Furthermore, you would be exempt from paying tax on the first £1,000 of rental revenue and £1,000 of self-employment income.

Earnings Exempt from Taxation

Certain types of earnings are exempt from taxation in the UK. Under UK legislation, any revenue earned from games or lotteries, long service rewards, or savings account income is exempt from tax payments.

However, there are some restrictions, and the exemption is subject to specific circumstances. Therefore it’s advised to hire a professional who can offer you more detailed information on tax rates and exemptions.

accountants calculating tax

Hiring a professional accountant to handle your taxation needs is always a good idea. Having a chartered tax advisor and accountant allows you to focus on expanding and growing your business.

IBISS & CO is a professional chartered accounting firm in Walsall that can manage all of your tax and accounting concerns.

Their team of expert chartered accounts and business advisors in the UK has significant experience dealing with complex tax and accounting matters.

Contact them today for more information.

About the Author

The author is a top-rated chartered accountant with extensive experience dealing with complicated taxation and accounting-related matters. She has a wide clientele base and helps them with their cash flow problems.

Leave a Reply