How Should The Income Tax Be Levied?
Income tax and the myths surrounded it need to be burst for the betterment of the taxpayers. Income tax is charged on most of the incomes like wages and salary from jobs, profits from the business, rents received if you are landlord, pensions, interests, and dividends received from savings and investments. As a usual rule, the total taxable income does not become apt for Income Tax. There are a few of allowances that are bestowed. An allowance refers to the amount of otherwise taxable income that you save and enjoy it being tax-free each tax year.
|Tax Rate (Band)||Tax Rate||Taxable Income 2018/19||Taxable Income 2019/20|
|Tax - Free Personal Allowance||0%||Up to £11,850||Up to £12,500|
|Basic rate||20%||£11,851 to £46,350||£12,501 to £50,000|
|Higher rate||40%||£46,351 to £150,000||£50,001 to £150,000|
|Additional rate||45%||Over £150,000||Over £150,000|
- There was a reduction of 1£ for every 2£ above the income threshold until it reaches 0£.
- The tax bill gets a reduction of 20%.
- 1000£ for basic taxpayers, £500 for higher taxpayers and 0£ for the additional taxpayers.
The allowances increase every year, and the increased rates apply from the start of the tax year that is 6th April.
What Includes Personal Allowance?
All including students are entitled to Personal Allowance, and it is that amount of money that one is allowed to earn each tax year before the payment of Income Tax. The Personal Allowance could be more significant if you claim Marriage Allowance or Blind Person’s Allowance or smaller owing to your income or any tax that was due to you from the previous year. The tax year is from 6th April to 5th April, for the 2019-20 tax year the standard Personal Allowance is 12,500£. The Personal Allowance would be 12500£ for the year 2020/2021- tax year and then indexed with Consumer Price Index (CPI) from after that. However, if the income is less than the set amount, then you are not entitled to pay any Income Tax. The amount that is set as Personal Allowance is decided by the government and can vary from one tax year to another.
What Is The Use Of Collected Income Tax?
HMRC collects the Income Tax on behalf of the government. The amount collected as Income Tax is used for funding the public services like education, NHS, investment in public projects like rails, roads, and housing and the welfare system.
The amount that will be paid as Income Tax- Income Tax is made of different bands. As the income and the Income Tax are directly related, that is as the income increases the amount to be paid as Income Tax also increases. This ensures that the ones who earn more contribute more towards public welfare.
National Insurance And Its Implications:
The National Insurance contributions are the tax on earnings that are paid by the employees and employers and get you entitled to certain state benefits like State Pension and Maternity Allowance.
National Insurance is not an annual tax. It is supposed to be paid for each pay period that is monthly, weekly, or as per the agreement with the employer. Thus this implies that in a month if the income is more your contribution towards the National Income is more, but in case if your income is less for the other months of the tax year, you will have no claim over the excess amount of contribution towards the National Insurance. One is obliged to pay National Insurance once the earning is more than 166£s a week. The National Insurance rate depends on your earnings, and it is as follows:
- 12% of the weekly earnings between 166£ and 962£.
- 2% of the weekly earnings above 962£s.
How Are The National Insurance Payments Being Used?
The amount so collected in the name of National Insurance is used in the following matters:
- The NHS
- The state pension
- Unemployment benefits
- Sickness and disability allowances
The employer and the employee both must pay National Insurance contributions on the earnings, which include the sick pay, holiday pay, and maternity pay. Thus the amount collected by the people is further spent for their betterment.