|A brief history
Income Tax has a long history. It was first announced in 1798 and introduced in 1799 by the then Prime Minister, William Pitt the Younger, to help pay for the war against France under Napoleon. The tax raised almost £6 million in its first year. The tax was repealed a number of times in the early years but the foundations of Income Tax as we know it were laid by Pitt’s successor, Henry Addington, who brought in the Addington Act which introduced two major innovations:
Although there have been many changes since the Addington Act of 1803, it set a precedent to tax individuals that continues to this day!
What is Income Tax?
There are certain types of income which are not taxable such as:
These income sources are ignored when calculating the amount of Income Tax payable.
The basic personal allowance for the tax year commencing 6 April 2015 is £10,600. In previous years, there were higher age related allowances for individuals born between 6 April 1938 and 5 April 1948 but the personal allowances bands are now the same. Individuals born before 6 April 1938 have an allowance of £10,660. In the 2012 Budget, the Government announced plans to phase out the age related personal allowances and confirmed that the allowances will be frozen until they eventually become aligned with the main personal allowances band. This is expected to happen fully from the next tax year (2016-17).
There is also a blind person’s allowance and a married couple’s allowance where one of the spouses was born before 6 April 1935.
The personal allowance is gradually reduced by £1 for every £2 of income over £100,000 irrespective of age.
New marriage allowance
Income Tax rates
* Savings income is taxed at 0% up to £5,000 (2014-15 £2,880 @10%). The 0% rate only applies to the extent that other taxable income is less than £5,000. If an individual’s taxable non-savings income exceeds £5,000 then the starting rate limit for savings will not be available. Dividends are deemed to be the top slice of total income in computing tax liability at 10%, 32.5% or 37.5% respectively for 2015-16.
The High Income Child Benefit charge applies to taxpayers whose income exceeds £50,000 in a tax year and who are in receipt of Child Benefit. The charge either reduces or removes the financial benefit of receiving Child Benefit. Where both partners have an income that exceeds £50,000, the charge applies only to the partner with the highest income.
The Child Benefit charge is charged at the rate of 1% of the full Child Benefit award for each £100 of income between £50,000 and £60,000. For taxpayers with income above £60,000, the amount of the charge will equal the amount of Child Benefit received. Taxpayers affected by the change have the choice to keep receiving Child Benefit and pay the tax charge through Self Assessment, or elect to stop receiving Child Benefit and not pay the new charge.
The rules for obtaining tax relief for business related expenditure incurred by employees are notoriously restrictive.
Paying Income Tax
In most cases, basic rate tax is also deducted on interest received from banks and building societies.
Taxpayers who are company directors, self-employed or who have complex tax affairs will need to file Self Assessment tax returns and pay their tax through the Self Assessment tax system. This is a special process with its own rules that can be found in one of our other guides.
Claiming Tax Relief
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