Personal Income Tax in the United Kingdom
In the United Kingdom, income tax is directly deducted from the wage slip according the "PAYE" system ("Pay As You Earn").
Tax residency is automatically established in the United Kingdom if the individual has stayed there for more than 183 days during the fiscal year, or if his or her sole residence is established there or if he or she works there on a full-time basis.
Income tax rates
Individuals are exempt from income tax up to £12.500 in 2019 / 2020,
- then the tax rate is 20% up to £50.000;
- 40% up to £ 150.000;
- and 45% beyond.
The employee must communicate his/her fiscal situation to the employer so that the correct tax code can be applied and the correct amount of tax can be paid to HMRC (Her Majesty's Revenue and Customs).
Is it required to file an income statement?
Hence, it is optional that an employee with one employer, declare annual income tax.
If an individual has several jobs, it is imperative that income tax is declared because taxes that are deducted directly from the wage slip can often be too high.
This is also useful if the employee wishes to declare deductible expenses such as travel expenses, contributions to professional organizations...
Certain benefits can be applied to reduce the amount of income tax to pay while declaring your taxes. These benefits include, but are not limited to, contributions to a pension scheme, student loans, and donations to charity.
It is also mandatory for people whose income does not come solely from their salaries, such as from self-employment, rent, dividends, capital gains, etc.
All revenues are taxed at the same rate except for a few exceptions.
Dividends are exempt up to £2,000 per year. Then they are taxed at 7.5%, 32.5% or 38.1% depending on the tax bracket.
An individual can rent a furnished room in his main home and be exempt up to £7500 of rent collected.
Capital income (e.g. sale of a painting or a house) is exempt up to £12,000 per year. Then, the tax rate is 10% (or 18% for residential property) if the individual is taxed in the first bracket of income tax. Otherwise, it is 20% (or 28% for residential property).
In addition, the sale of a company or shares in a company in which the individual holds more than 5% of the capital is subject to the 10% tax rate.
Finally, the interest earned on NS&I certificates and Individual Savings Account (ISA) certificates, as well as gaming and lottery winnings are exempt.
Fiscal year
The fiscal year in United Kingdom runs from the 06/04/N to 05/04/N+1. Therefore, if the taxpayer wishes to file his or her tax return, he or she must send it in paper format before the 31/10/N+1 or online before 31/01/N+2.
Income tax will be payable by 31/01/N+2. Payments on account may also be claimed on 31/01 and 31/07 unless the previous year's income tax is less than £1000 or more than 80% of the income tax for the previous year was collected through the withholding tax on pay slips.