Accounting for dummies and how to do your own income tax return

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Not everyone is able to calculate their income tax return confidently and accurately. In simple words, one needs to complete a UK Tax Return form.

However, for those with complicated tax affairs, things may sound a little overwhelming. As the basics of UK Income Tax, the tax returns are to be filed each tax year from sixth April to fifth April. Not all income is taxable, and one should pay tax only on their taxable revenues and on income above a certain level. Those allowances and reliefs should be taken advantage of to reduce the Income Tax bill.

You will need to pay tax if you are a company director, earn foreign income, get rental income, are a trustee and earn money from employment. Hover, there is no need to pay tax n Individual Savings Accounts (ISAs) and winnings and other tax-exempt accounts. UK Income Tax gets collected through PAYE or Pay as You Earn system, where the tax get deducted by the employer and is paid to HMRC. Under the self-assessment tax return system, one need to file for the tax themselves.

Simple steps to calculate tax

In order to calculate tax,

  1. Add all of the income and deduct tax-free allowances.
  2. Now, apply the right tax rates to what’s left

Nearly every UK resident receives a Personal Allowance, which is the amount of taxable income one is allowed to earn. When considering your income, it can be Non-savings income, Savings Income and Dividend income. You should subtract the tax-free allowance from your non-savings and dividend income. Once the tax-free allowances are taken care of, the amount of tax to be paid is calculated based on different tax rates and a series of tax bands. Any savings and dividend income is added to other taxable income and taxed last. Non-savings and savings income get taxed at 20%Basic rate, 40% higher rate and 50% Additional rate. Get aware on the special rules that apply to very low levels of savings.

Nothing can be certain forever with taxes, and yet there are always some confusions and doubt as to how will one get taxed and how the rates can change rapidly. It is best to follow the right advice and guidelines to know if you end up in the 20% or the 40% tax bracket.

Want help today? In the event of tax, always call Tax Twerk.

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