The amount you are taxed on your income is dependant on various factors such as the tax bracket you fall into and the level of personal allowance you are entitled to along with many more. To understand all the factors that affect tax liability a course in accountancy would have to be undertaken, however the most basic factors are explained below.
Income tax allowances
In the year 2011-12 individuals earning up to £100,000, are not taxed on the first £7,475 they make in profit.
For people who are earning above £100,000, the applicable personal allowance reduces by £1 for every £2 that is earned above the threshold.
If an individual earns less than £35,000 they would fall into the basic rate tax bracket meaning that any profit they make after their personal tax allowance will be taxed at 20%.
For those earning between £35,000 and £150,000 and who therefore fall into the higher rate tax bracket, tax is charged at 40% and anyone earning above £150,000 fall into the additional tax bracket and are taxed at 50%.
For example, if John earns £42,000 per year he would be entitled to an allowance of £7,475 and would fall into the basic tax bracket meaning he would pay tax on £34,525 at a rate of 20% resulting in a tax bill of £6,905.
This is a very simplified example though and there are a lot more considerations which need to be made when calculating how much tax you owe, therefore it is best to ask your accountant about how your individual circumstances affect your tax liability.
The Accountancy Partnership offers free advice and guidance inclusive in your package and our accountants are always happy to help you understand why you are being taxed a certain amount; after all if you’re handing over money it’s nice to know why!
If you would like to discuss the services we can offer you and receive a quotation please do not hesitate to phone or email us, or alternatively, you can simply use the live chat link available.
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About The Author
MAAT and ICPA accountant, with a passion for making accountancy and bookkeeping accessible. Other interests include cloud-based software development for web and mobile access, keeping fit, reading, and entrepreneurship.