Accounting basics and the importance of income tax

April 1, 2016

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How much Income Tax one pays in each tax year depends on certain aspects, such as previous tax years, current rates and allowances and income over £100,000.

One needs to have their accounting basic clear so as calculate the taxes right. They need to be sure as to how much of their income is above your Personal Allowance and how much falls within each tax band. It is essential to note that some income is tax-free. Every year, there are new tax allowances and bands probably. The standard Personal Allowance attends at £10,600, and this is the amount of income where one need not pay taxes on.

The Basic rate is for 20% for those with income in the bracket of £0 to £31,785. People with the standard Allowance start paying this rate if they earn an income over £10,600 and with a higher rate of 40%, for income ranging from £31,786 to £150,000. Additional rate of 45% is exercised for those earning more than £150,000. For those living in Scotland might pay a different rate of Income Tax. The Savings interest is taxed at 20% automatically, and one might
be able to get tax some of the tax back. However, for those earning higher will need to pay more tax. One has to pay extra tax on dividends if they own shares in a company.

If you want to save money on TAX, be aware of some aspects related to Accounting and Income Tax Returns. For example, you may be eligible to claim Income Tax reliefs if you’re in a civil partnership or married or you can reduce your partner’s tax if your income is less than the standard Personal Allowance. If you’re a sole trader or partner, ‘Cash basis’ is the right way to work out your income and expenses. The cash basis accounting may suit your needs better than traditional accounting if you run a small business. You should declare money only when it flows in and out of your business. There is no need to pay Tax on money you didn’t get in the accounting period.

Once you are sure of your personal payment, anything above that earned will be subject to income tax. There are three income tax groups for the 2015/16 tax year, including the 40% tax bracket and the 45% ‘additional rate’ bracket. Keep in mind that the personal allowance shrinks once earnings touch hit £100,000.