Find out how much tax you are required to pay on your several sources of income, such as your earnings, your savings, and your property.
What will my final tax bill look like?
If you file taxes at the standard rate, your total tax liability will account for around one third of the money you bring in each year.
Twenty percent of the total is comprised of the various taxes that are deducted from your income, such as PAYE and National Insurance. The remaining portion is allocated to various indirect taxes such as value-added tax, charge on alcoholic beverages and gasoline, and municipal tax.
This tutorial will walk you through the many types of taxes, as well as how much you will be charged for each one and how they will be collected from you.
Utilize the tax calculator provided by Which? to get an early start on preparing your 2021-22 tax return. Calculate your expected tax liability, see where you may be able to cut costs, and send your return to HMRC
Tax on income
You are required to pay income tax on any money that you earn. This includes money earned by working for someone else, being self-employed, receiving a pension, as well as other types of income, such as renting out a home.
Your taxable income is the amount of money you make in excess of your personal allowance (which is set at £12,570 for 2021-22 and 2022-23) as well as the amount of any other tax reliefs to which you are entitled.
In addition, you may be required to pay income tax on any taxable fringe benefits, such as a company car or private health insurance, that are provided to you in your capacity as an employee.
Because the tax on income received from an employer is typically withheld through PAYE before the employee receives their wage, the employee is not required to do any additional steps.
In order to satisfy your obligation to pay income tax, you are required to file a self-assessment tax return if you are self-employed, get untaxed income from renting a property, or have a salary from more than one employer.
You may learn everything you need to know about self-assessment by reading our guides on the topic.
The United Kingdoms of England, Wales, and Northern Ireland
Income tax is calculated according to one of three brackets for residents of England, Wales, and Northern Ireland.
Basic-rate taxpayers are those whose taxable income does not exceed £37,700; they are required to pay tax at the rate of 20%.
This means that the earnings threshold for taxpayers subject to the basic rate is £50,270, taking into account your personal allowance of £12,570.
Those who have an annual income that is subject to taxation that is greater than £50,270 will be subject to a tax rate of 40% on any income earned beyond this threshold.
A tax rate of 45 percent is applied on taxable income that is in excess of £150,000.
Although taxpayers in Wales are subject to the same rates and thresholds as those in England and Northern Ireland, since the authority to collect income tax in Wales has been delegated to the Welsh government, these parameters are subject to change in the not-too-distant future.
There are additional tax categories in which taxpayers pay different rates, and the thresholds are also different from those in the rest of the United Kingdom. Income tax rates in Scotland are distinct from those in the rest of the United Kingdom.
The following table presents a breakdown of the income tax brackets that apply in Scotland:
|Up to £12,570||Personal Allowance||0%|
|£14,733-£25,688||Scottish basic rate||20%|
|Above £150,000||Top rate||46%|
Those with lower incomes will enjoy the benefit of paying a 1 percent lower income tax than the rest of the UK, but those with higher wages may wind up paying a 1 percent higher income tax than they would have otherwise.
Insurance on a National Scale
National Insurance is an additional tax that must be paid on top of income tax by everyone whose income is above a specific threshold.
When you make enough payments into the National Insurance system, you become eligible for a variety of state benefits, including the state pension, the Employment Support Allowance, and bereavement benefits.
In the fiscal year 2021-22, employees paid a tax rate of 12 percent on earnings that ranged from £9,568 to £50,270 annually, and a tax rate of 2 percent on earnings that were higher than this threshold.
National insurance rates went hiked by 1.25 percentage points for the 2022-23 tax year, which means that the rate you pay on wages between £9,880 and £50,270 (between the 6th of April and the 5th of July) is now 13.25 percent, and the rate you pay on income over this threshold is 3.25 percent.
Along with the increase in the income tax threshold, the national insurance threshold will also rise on July 6, 2022, going from £9,880 to £12,570.
Workers who are their own bosses
Many people who are self-employed will be required to make contributions to both Class 2 and Class 4 of the national insurance system.
Class 2 payments were required to be paid on profits greater than £6,515 per year at a rate of £3.05 per week in the fiscal year 2021-22. The amount that must be contributed each week is now £3.15 for the tax year 2022-2023.
Earnings between £9,568 and £50,270 were subject to a Class 4 contribution rate of 9 percent in the fiscal year 2021-22, while earnings above that threshold were subject to a rate of 2 percent.
These numbers have increased by 1.25 percentage points for the 2022-23 tax year, which means that you will now be subject to a tax rate of 10.25 percent on earnings that fall between the range of £9,880 and £50,270 (between the 6th of April and the 5th of July), and a tax rate of 3.25 percent on income that is greater than that level.
The threshold for Class 4 will rise to £12,570 on July 6, 2022, up from the current level of £9,880.
Instructions on how to compute and pay one’s national insurance premiums
If you are an employee, your employer will deduct PAYE and National Insurance from your salary in accordance with legal requirements. People who are self-employed are required to file a tax return using the self-assessment method.
You can read our guide to national insurance to learn about all of the rates that might be applicable.
You may also figure out how much you are expected to pay for National Insurance by using the calculator that we have provided down below.
Value added tax (VAT)
The value-added tax, or VAT, is a tax that is imposed to the majority of products and services; however, certain things, such as postal stamps, financial transactions, and property deals, are excluded.
There is a conventional VAT rate of 20% on most products; however, there is a reduced VAT rate of 5% on some things, such as children’s car seats and home energy.
The value-added tax (VAT) operates in a manner that is analogous to the excise duty, which is a tax that is levied on a variety of products and services, including cigarette and alcohol sales, gasoline purchases, and airline tickets, among other things (unleaded petrol has a lower rate than standard diesel, for example).
How do I pay VAT?
When you acquire products or services, the VAT is typically already factored into the price before you pay for them; therefore, you do not need to do any additional steps. If the items or services you are purchasing are for your place of employment or business, it is likely that you will be able to get the value-added tax (VAT) that you have already paid back.
If you are in business for yourself and selling products or services, you are responsible for adding the appropriate VAT amount. If the VAT taxable turnover of your company is greater than £85,000, you are required by law to register for VAT with HMRC.
When purchasing a residential property in England or Northern Ireland with a value that is greater than £125,000, you are required to pay a tax known as the Stamp Duty Land Tax (SDLT).
The initial rate of 2 percent applies to properties with a value ranging from 125,001 to 250,000 pounds. After that, you’ll be responsible for a five percent tax on the remaining balance of the property price, which ranges from 250,001 to 925,000 pounds. You will be subject to an additional 10% tax between that point and £1.5 million, and a further 12% tax on anything over £1.5 million.
If this is your first time purchasing a property, you won’t have to pay stamp duty on properties that cost $300,000 or less. However, you will have to pay 5% on the portion of the home’s worth that falls between $300,001 and $500,000. If the home is worth more than half a million pounds, your purchase price will be comparable to that of other customers.
Using our stamp duty calculator, you can determine in a matter of seconds the total amount of stamp duty that is owed on a piece of property.
On top of that, a stamp duty payment of 0.5 percent is due for any purchase of shares or other securities that fall under this category.
In Scotland, residents are required to pay Land and Buildings Transaction Tax (LBTT), which utilises a tax structure that is somewhat analogous but with varying price categories. Our guide to the LBTT in Scotland provides an in-depth explanation of how the tax is calculated.
There is a Land Transaction Tax in the nation of Wales. This is a tax that must be paid if the price of the home you want to reside in is more than £180,000, which is significantly more than the threshold of £125,000 in England. Check out our guide to the Land Transaction Tax in Wales for more information.
How do I pay stamp duty?
The payment of stamp duty is required once the acquisition of the property has been finalised, and the payment must be made to HMRC within 14 days in England and Northern Ireland. In order to accomplish this, you will need to file a return for stamp duty and land tax.
Buyers in Scotland and Wales have a month to make the payment for the equivalent land taxes after the purchase of property.
In many instances, your conveyancer will pay HMRC on your behalf and will include the stamp duty charge in with all of the other fees; nevertheless, it is still your responsibility to pay it on time. Your conveyancer will put the stamp duty charge in with all of the other expenses.
Tax on inherited property (IHT)
If your estate is worth more than £325,000 during the tax year 2022-23, you will be required to pay inheritance tax on the value of your estate.
The primary house nil-rate band was implemented on April 6, 2017, and it provides an additional allowance to individuals who are going to be passing down the family home to their offspring.
Because of this, you will be able to donate an additional 175,000 pounds in 2022-23.
Couples who are married or in a civil partnership are able to combine their allowances and hence have the ability to pass on £1 million.
If the value of your estate is greater than the nil-rate band and/or the property nil-rate band, you will be subject to a tax rate of forty percent on the amount that is greater than the threshold.
Depending on the total value of your estate, you can also be required to pay inheritance tax on certain gifts that you make throughout your lifetime, most of which will be made to trusts.
How do I make the payment for the inheritance tax?
Inheritance tax must be paid by the beneficiaries of an estate no later than the end of the sixth month following the decedent’s passing; for example, if the decedent passed away in January, the tax must be paid no later than July 31.
If you do not pay by the specified date, the HMRC will assess interest on the amount that is still owed.
Capital gains tax
You are required to pay tax on the profit you make from the sale of any assets, including belongings and investments, as well as the increase in value of those assets from the time you first obtained them until the time you give them away, unless those gains qualify for an exemption.
Gains on investments are subject to a rate of 10% tax for taxpayers who pay the basic rate. Those individuals who are currently subject to an income tax rate of forty percent will have their rate increased to twenty percent. Gains realised from the sale of residential property, including second residences, will be subject to increased tax rates (18 percent for basic-rate taxpayers and 28 percent for higher-rate taxpayers).
The threshold at which you must begin paying tax on earnings made from the sale of assets remains unchanged at £12,300 for the fiscal year 2022-2023.
How do I pay capital gains tax?
You have the option of reporting the majority of your capital gains in a self-assessment tax return and making annual tax payments on them, or you can use the’real time’ capital gains tax service that is offered by HMRC.
You are required to pay the capital gains tax (CGT) on any property that you sold after October 27, 2021, and you must do so within sixty days of the transaction by submitting a “residential property return” to the HMRC.
Tax on the council
Residents are required to pay a council tax to the government in order for the government to maintain and operate local facilities such as garbage collection, social services, law enforcement, park maintenance, and fire protection.
The amount of the fee that you have to pay is determined by the type of property that you live in. The potential market worth of a property as at a particular point in time is used to categorise it into one of multiple council tax bands.
Depending on the type of occupants currently residing in a given property, the council tax may not apply to that property at all or it may apply at a reduced rate.
There is a system of residential rates in Northern Ireland, and the way they are determined is based on rental values.
Check out our guide to council tax if you want additional information on how to lower your bill and how much you currently pay.
How can I make payment for the council tax?
Your local government will send you an invoice for the council tax that you owe. You have the option to pay for the entire year all at once, but it might be simpler for you to set up a direct debit, in which case you will typically be invoiced for ten of the twelve months.
Learn more about how to pay your council tax here.
Insurance premium tax
The majority of insurance policy premiums are subject to the insurance premium tax, sometimes known as IPT (but not life insurance). This encompasses things such as homeowner’s insurance, car insurance, and insurance for pets.
There are two rates that are applicable: the standard rate, which is 12 percent and is charged on most insurance policies There is also a higher rate that is normally used, which is 20%, and it is used in situations where insurance is supplied in combination with vacations and the majority of consumer electrical products.
How do I pay insurance premium tax?
IPT ought to be applied to your insurance quote before you pay for it; hence, the rates you see advertised are already inclusive of insurance premium tax; you will pay for the policy when you buy it.
On any money earned from shares that you have purchased, you will be subject to dividend tax. This may be the result of the shares increasing in value, allowing you to make a profit when you sell them; alternatively, it may be the consequence of the firm distributing some of the profits it makes to shareholders.
Any dividend income over £2,000 that you receive in the tax year 2022-23 will be subject to taxation. This will remain the same in 2021 and 2022.
Your standard rate of income tax is used to calculate the amount of additional tax that will be withheld from you. For the fiscal year 2022-2023, there has been a 1.25 percentage point increase in the rates. Taxpayers who are subject to the basic rate pay 8.75 percent, taxpayers who are subject to the higher rate pay 33.75 percent, and taxpayers who are subject to the additional rate must pay 39.35 percent.
How can I make my tax payment on dividends?
You are required to report your earnings to HMRC if they range between £2,000 and £10,000. Either HMRC can alter your tax code so that the tax is progressively deducted from your salary or pension, or you can fill out a self-assessment tax return and receive a bill for the total amount that is owed to pay the tax. Both of these methods allow you to pay the tax that is owing.
If you receive more than £10,000 in dividends, you are required to file a tax return using the self-assessment method.
Tax on savings
The interest that you earn on your savings while they are held in a bank or building society account is subject to taxation. If your assets are held in an Isa, however, the interest that you receive is exempt from taxation.
If your annual income is lower than the personal limit of £12,570, you may be eligible for tax-free savings of up to £5,000. This incentive is often referred to as the savings beginning rate. This tax-free savings amount will decrease by one pound for every additional pound beyond the personal allowance that you earn.
In addition to this, any taxpayers who pay tax at the basic rate (as well as low-earners who are exempt from paying tax) can earn up to £1,000 per year from the interest on their savings accounts; this is known as the personal savings allowance.
Higher-rate taxpayers are allowed to keep up to £500 of their income. Those who pay tax at the additional rate are not eligible for any savings allowances, and as a result, they are required to pay tax on whatever interest they earn on their savings.
How do I pay tax on savings?
If you have exceeded your personal savings allowance, you are required to notify HMRC and either file a tax return under self-assessment or make a modification to your PAYE tax code in order to pay the additional tax that is due.
money that has not been taxed and penalties for late payment
There are strict time limits for submitting your tax return, making payments on your taxes, and in certain situations, reporting HMRC of any new income you have received.
It is possible that you will be required to pay a penalty if you are late in filing your return or paying your taxes (or if you miss any other deadlines). When taxes are paid late, interest is added to the total amount owed.
If you have untaxed income that is subject to taxation, you are required to report it to HMRC. The tax office where you file your taxes can instruct you on how to report it properly. If you are a PAYE taxpayer, you can either file an additional tax return or make a modification to your tax code in order to pay the additional tax.
By the 5th of October after the end of the tax year in which you got the money, you are required to inform your local tax office about any additional untaxed income you have received. If you have income that was not subject to taxation during the fiscal year 2021–2022, you are required to notify the appropriate tax authority of this fact no later than October 5, 2022.
A perfectly legitimate course of action is to organise one’s financial affairs in such a way as to pay the minimum amount of tax required. It was “working within the letter of the law, but not the spirit of the law,” according to HMRC.
After HMRC completes its investigation of individuals who participate in tax avoidance schemes, a significant number of those individuals will discover that they will wind up paying a greater amount of tax than they had originally intended to save.
A person commits a crime if they conceal income or gains, make false claims for allowances or other deductions, or engage in any other form of tax evasion. If the HMRC determines that you have been evading taxes, you could face a monetary penalty or even time in jail.