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Individuals are required to pay tax on income
arising from employment, self employment,
investments and on benefits in kind (such as
private healthcare provided by an employer).
Income tax is national and is collected by the
Inland Revenue.
With the exception of Scotland (where the
Scottish Parliament has, as yet unused, powers
to raise or lower taxes) there are no local
income taxes within the UK.
A personal 'income tax free' allowance is
provided to each individual taxpayer each year
and only income in excess of this allowance is
taxed.
|
Income Tax Allowances |
2001/2002 |
2002/2003 |
|
Personal |
£4,535 |
£4,615 |
|
Personal (Age 65-74) |
£5,990 |
£6,100 |
|
Personal (Age 75 +) |
£6,260 |
£6,370 |
|
Children's Tax Credit |
£5,200 |
£5,290 |
|
Baby Rate |
n/a |
£10,490 |
|
MCA 65 before 6/4/2000 |
£5,365 |
£5,465 |
|
MCA (Age 75+) |
£5,435 |
£5,535 |
N.B.
The Married Couple's Allowance (MCA) is
restricted to 10% . The income limit for age
related allowances is now £17,600 (£17,000
2000/01). Allowances reduce by £1 for every £2
of income above the income limit (but with a
minimum MCA of £2,110). The widow's bereavement
allowance has been abolished for deaths
occurring after 5/4/2000.
In 2001/02 The Government introduced Childrens
Tax Credit (CTC) for parents, irrespective of
marital status, who have at least 1 child under
16 living with them. The maximum allowance is
£5,290 and relief is given at 10%. If the
claimant is a 40% taxpayer then the allowance is
reduced at the rate of £2 for every £3 of income
above the threshold.
Subtract your personal allowance from the income
you have earned to get your taxable income. Then
income tax is charged on your taxable income at
the following rates:
|
Tax Rate (%) |
2001/2002 |
2002/2003 |
|
10% |
the first £1,880 |
the first £1,920 |
|
22% (1999/00 at 23%) |
the next £27,520 |
the next £27,980 |
|
40% |
over £29,400 |
over £29,900 |
N.B.
Dividend income is taxed differently. Dividend
income is paid with a tax credit of 10%.
Taxpayers who pay tax at 10% or 22% pay no
further tax. Those who pay no tax at all cannot
reclaim tax paid on dividends. 40% taxpayers pay
tax on dividends at 32.5%. Simple really!
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