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tax and national insurance

Pay Income Tax and National Insurance to the Government

Tax bills are a very important source of revenue for the government. The money you pay goes for the expenditures that are required for running your local public institutions and paying the salaries of the people employed there. If you have any arrears in your tax bills, it is treated as a priority debt in the UK. That means you’re supposed to deal with them before you do so with any other debts. 

So, it is a very serious matter, especially so when it comes to certain types of tax. You can get into some serious trouble if you keep ignoring them. Also, it’s important to know how much you’ll have to pay and whether you’re being charged the right amount. It is very important that you get any errors removed.

National insurance is a way to make sure that you can avail of various types of government benefits when you need them. However, the amount you’ll have to pay is fixed and you might want a reduction. Here, you’ll find all that you should know about tax and national insurance.

Who is Liable to Pay Income Tax?

As you know, you’ll have to pay a certain percentage of your income to the government as tax. However, this is not as simple as it may sound to you. You’ll be required to pay only if you earn above a specified amount. Anything below that would be treated as a personal allowance by the government. 

So, you won’t be charged any percentage of tax on it. Now, even if you have crossed the minimum taxable income, you won’t necessarily be taxed as much as the next person. The amount that you’ll have to pay would depend on how much you earn exactly. Also, an increase in earnings beyond a certain limit would also get your non-taxable income decreased.

How does Non-taxable Income Work?

First, you must know that the personal allowance doesn’t always stay constant. It may differ in your case from one tax year to another. In addition to that, it also changes every year. In case you’re wondering, this duration lasts from 6th April of the current year to 5th April of the next one. 

In general, the amount that is non-taxable for 2020-21 is £12,500. If you earn below this amount, you won’t have to pay anything. It is possible that the personal allowance limit will increase or decrease slightly in the next year. Another thing you must know is that you’ll be spared a lesser amount from tax if you had paid less in the previous year. 

That’s the way in which the government will recover the money you haven’t paid them. You’ll get a bigger allowance if you have overpaid in the last year. Also, this amount will start to decrease as your income rises above £100,000.

How much of your income will you have to pay as Tax?

As you know, there is a fixed amount on which you won’t have to pay any tax. If you earn above that, the income is divided into different scales and a percentage is fixed for the amount you earn within that. 

If you earn above $12,500, you’ll be charged 20% on the amount up to £50,000. If your income is above this amount, 40% of what you earn up to £150,000 will be added to what you pay for the first scale. If your income exceeds this amount as well, they’ll add a tax of 45% on any amount you earn above £150,000.

Is there any way you can reduce your Income Tax?

For various reasons, you might want to get your income tax reduced. Even though that’s not possible in all cases, you can successfully apply for a reduction under some circumstances. If you’re married and don’t pay income tax but your spouse does, then you can get a marriage allowance to reduce the payable amount. 

Another way you can get a reduction is by getting a married couples’ allowance. You can avail this if either you or your spouse has a date of birth earlier than 06/04/1935. You can check your eligibility for these two allowances from the government website if you think either of them applies to you.

Can you get Relief from your Income Tax?

Since it is such an important part of the government revenue, it is naturally hard to get relieved from it. The government would grant something like that to you only if they see a strong reason to do so. 

You can avail relief from the tax on a certain amount which you have to use in paying for some specific expenses such as business. This is not applicable to the people who are employed at a fixed salary. Another way the government might grant it to you is by paying you the amount. If you want to check your eligibility for income tax relief, you can do so at the government website. In some specific cases, you won’t even have to apply to get relief.

Do you have to Pay for National Insurance?

There are many benefits that are offered by the government to the people in times when they need it. For availing of some of these benefits, you have to pay the government. So, it can be said that it’s the money you pay that would be returned to you as a benefit. 

You have to be at least 16 years of age to pay for National Insurance. In addition to that, you can either be an employee with a fixed salary or self-employed. Starting with the first case, you must have a minimum weekly earning of at least £183. 

In the second one, you must be able to earn at least £6,475 a year. The amount that is to be paid differs along with the income of each individual. Until you reach the pension age, you’ll have to keep paying if you want to avail pension after that. Otherwise, you might not be given the amount decided by the government as a pension. 

In some cases, you can also pay your National Insurance voluntarily as well. By doing that you’ll be able to prevent any gaps in it in order to make sure that you get pension benefit later on. 

There are many reasons to do this that include — the low income for a temporary period, when you temporarily go abroad, etc. The payable amount would also differ with each case. The government website can help you check whether you’re eligible. You would get a time of six years for the missing payment if you want to fill the gap.

Who is in Charge of Collecting Tax and National Insurance?

The HMRC is the government agency that has the authority to collect tax and National Insurance money. They can keep up with unpaid taxes for as many as 20 years. So, there’s no chance that you can simply not pay them and have them forget about your debt. 

Instead, you must go for a reduction if it’s applicable to you. Otherwise, you’ll have to pay them eventually, either at once or with some kind of payment arrangement. The only case where they’ll leave you alone is when they’re convinced you can’t pay them. For example, after your death or if you’re terminally sick.

It is the HMRC that sends you a notice informing you of how much you have to pay every year. If you’re not familiar with them and have never received one, they contain a tax code. It is a coded version of the amount that is non-taxable which includes letters with some meanings and helps calculate the money you’ll pay.

Do you know what your Tax Code Signifies?

If you’ve received your payment notice for the first time, you might be unfamiliar with how to read your tax code. In that case, you need not worry as it’s quite simple. They typically come with a number and one or more letters after that. The number is calculated by taking your personal allowance amount and dividing it by 10. This is either prefixed or suffixed by a letter. 

In normal circumstances, it would be suffixed with L. For example, 950L if you have £9500 of the personal allowance. If you receive any tax benefits or have arrears, it will be prefixed with a K. A group of people might have more than one source of income, including pensions or dividends. In those cases, the number is prefixed by D or there’s no number at all. Suppose if they don’t have proper information about your income, your tax code will have BR at the beginning. In cases where you’ve got relief or the tax code doesn’t apply to your situation, it’ll end with X, M1, or W1.

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