A FEW ESSENTIALS Introduction Taxation in the UK is administered and regulated by HMRC. Many individuals will have little or no regular contact with HMRC. For employees, income tax is typically deducted at source from earnings before they are paid out by way of Pay as You Earn (PAYE). Often other sources of income, such as savings and dividends, are covered by allowances such that no tax needs to be paid. Without additional income tax payable to HMRC, these individuals do not need to complete income tax returns.
Tax rates and allowances The income tax bands and rates for 2024/25 are determined by where you live in the UK and the type of income you have. For most UK residents the following tax rates and bands apply:
Practical Tip If you are not asked to complete a tax return, it remains your responsibility to advise HMRC by 5 October following the tax year if there is untaxed income, a capital profit that could lead to a tax liability or high levels of employment expenses or savings income. For the 2024/25 tax year, the high income child benefit charge is taxable through PAYE for employees, although the need to register for self-assessment currently remains. Please contact us for further advice if this affects you. The personal allowance In principle, all individuals are entitled to a basic personal allowance before any income tax is paid. This means that many individuals do not pay income tax on the first £12,570 (for 2024/25) of income they receive, and individuals who have lower levels of income may not need to pay any income tax at all. The personal
Non-savings and savings income rate %
Taxable income £
Dividend rate %
0 - 37,700
20 40 45
8.75
However, over 12 million taxpayers have something more than just a regular income taxed under PAYE or income covered by the savings and dividend allowances. They might have income from their own business or receive rent from a property. Alternatively, it may be that their savings or dividend income is significant enough to result in tax being payable. These taxpayers may be asked to complete a self assessment return each year and have direct contact with HMRC. Other taxpayers may need to complete periodic returns; for example, where they have made a disposal of an asset which is subject to Capital Gains Tax (CGT) or be responsible for collecting and paying the tax on behalf of others such as employers or businesses charging VAT.
37,701 - 125,140
33.75 39.35
Over 125,140
Taxable income is income in excess of the personal allowance. Non-savings income is broadly earnings, pensions, trading profits and property income. Savings and dividends allowances Individuals may be entitled to the savings allowance (SA), with savings income within the SA taxed at 0%. The amount of SA depends on an individual’s marginal rate of tax (the highest rate of tax to which they are subject). An individual taxed at the basic rate of tax has an SA of £1,000, whereas a higher rate taxpayer is entitled to an SA of £500. Additional rate taxpayers receive no SA.
allowance is now fixed until April 2028. Losing the personal allowance
However, the personal allowance is reduced for individuals with higher levels of income. Where an individual’s adjusted net income exceeds £100,000 the personal allowance is reduced by £1 for every £2 of income in excess of that limit. This means that an individual with an income of £125,140 or more will not be entitled to any personal allowance.
A Few Essentials
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