Home > Personal Income Tax > What is Income Tax?

What is Income Tax?

By: J.A.J Aaronson - Updated: 29 Aug 2014 | comments*Discuss
 
Income Tax Schedule Gross Percentage Uk

Income Tax is, in the most basic terms, a tax which is levied upon the incomes of individuals. Corporations are legally regarded as private individuals in the UK (thus the immunity possessed by employees of a corporation against prosecution for crimes committed by the corporation itself), and so the term income tax can be used to describe both the taxation of private citizens' income and that of corporations.

Gross Income

In the case of individuals, income tax is calculated as a percentage of annual gross income; that is, the total income before any previous deductions. There is also a range of different types of income upon which tax is levied (known as 'taxable income' or the 'tax net'). Some of these types of income are subject to their own individual forms of taxation; income received as a result of a rise in share price, for example, is subject to capital gains tax. However, all of these types of tax are part of the income tax system.

When someone talks about income tax in the UK, it is generally assumed that they are referring to the tax paid on an individual's wages. In this country income tax is progressive, meaning that a number of tax bands exist. Each of these bands covers a certain income threshold, and individuals who are earning larger sums of money will pay more tax until they reach the upper band, at which point the percentage of their income which is owed to the Exchequer will remain the same.

British income tax did not always operate this way. Until the build-up to the Napoleonic Wars there was a flat tax, meaning that everyone owed the same percentage of their income, regardless of how much they earned. It is generally thought that a progressive tax system is the fairest of all possibilities.

Income Tax Schedules

There were originally six income tax Schedules, named alphabetically, although only Schedules A, D and F are still in use. These cover income from land held in the UK, income from trade and professions, casual income, income from overseas occupations and interest, and interest on dividends from UK-held assets.

Within each of these Schedules, the bands determine how much income tax you will pay. Currently basic rate earners pay 20%, higher rate earners pay 40%, and there is an additional rate of 50%. No income tax is payable on income below a certain threshold; this is currently set at £9,440 for the 2013-14 financial year, rising to £10,000 for the 2014-2015 tax year.

For the majority of people, income tax is paid on a PAYE (Pay As You Earn), basis. This means that your tax payments will be made automatically from your wage packet if you are employed, thus reducing the onus on the individual.

However, if you are self-employed, you will be required to fill out a Self Assessment at the end of each tax year. In this form you will need to declare all of your income, and the Inland Revenue will then determine how much tax you must pay. Similarly, under- or over-payments are also rectified at the end of each financial year.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
I bought a property in 1976 for my mother to live in rent free which she continued to live in until 2012. After that date I fully refurbished the property and put it up for sale, the market wasn't good so I decided to rent which I did until May this year. I have just completed the sale at a price which was lower than the price advertised in 2012. In the eighties my solicitor told me that although the tax liabilities on such properties had changed I didnot fall into the new liability as I had bought in 1976. I also lived in the property for the first year. Am I right in my assumption that there is no tax liability up to 2012.
Dotto - 29-Aug-14 @ 5:39 PM
I am in receipt of three private pensions plus my OAP pension, £14,200 gross The taxman takes my tax from my private pensions but tells me that at the end of the year I will still end up owing him money because he is not allowed to take tax monies from my OAP money. 1.How does it work that I end up still owing him money. 2.How can I repay this money if he cant take it from my OAP pension. If I pay him by cheque at the end of the year that money has to come as extra money from my private pension or from my OAP monies whixh he is not allowed to touch Have I got it wrong or what.????????
BUB - 7-Jul-13 @ 8:00 PM
Share Your Story, Join the Discussion or Seek Advice...
Title:
(never shown)
Firstname:
(never shown)
Surname:
(never shown)
Email:
(never shown)
Nickname:
(shown)
Comment:
Validate:
Enter word:
Latest Comments
  • Cat
    Re: How Will My Second Job Be Taxed?
    Will I still get taxed on my second job if that job's income plus my first one (and any previous one I had that year) amounts…
    13 December 2018
  • LucianoA
    Re: Should I be Paid Mileage Allowance?
    Hi, My employer doesn't pay any mileage allowance, however they offer a company car scheme. My problem is, if I…
    6 December 2018
  • Lou
    Re: How Will My Second Job Be Taxed?
    Hi, I work full time my annual income is 25,000. I am considering taking a second job, how would this effect the amount of…
    14 November 2018
  • Rjrjrj
    Re: How Will My Second Job Be Taxed?
    Hi just need advice on my 2nd job im currently working full time @37 hrs per week min wage and maybe starting 2nd job @16 hrs…
    9 November 2018
  • carol
    Re: What is My Tax Code?
    I have one job permanent but get paid 32 weeks a year. another job in the same place zero hours contract, paid 35 weeks a year I would…
    9 November 2018
  • Ellie
    Re: How Will My Second Job Be Taxed?
    We are currently on working tax credits. My husband earns 8200 and has taken a zero hours job earning roughly 2000 a year .…
    7 November 2018
  • Mikey
    Re: Claiming Tax Relief on Mileage
    I work on building sites as an employee but get no mileage allowance or extra money to cover fuel and travel in my own vehicle.…
    7 November 2018
  • tink
    Re: Can Tax Allowance Be Claimed on Work Clothes?
    Hi I work in a school as a family support worker and travel all over the Wirral supporting them in the…
    6 November 2018
  • Hellc98
    Re: Should I be Paid Mileage Allowance?
    My employer has refused to pay my mileage as they say I have not put my odometer readings on the claim forms. I have…
    5 November 2018
  • Kelly
    Re: What is My Tax Code?
    Hi, I earnt 9k and got taxed 1.1k so far in this tax year as I was on 35k for 3 months. Then I had 3 months of unemployment. And for the rest…
    31 October 2018