As painful as it may be to see a percentage of your pay deducted every month, tax is hugely important! It is necessary to pay for the Armed Forces (our salaries come from tax!), health, welfare and social services, schools and universities, and transport systems. Taxes are also used to support industry, sport, heritage and culture. Parliament has the responsibility to consider and approve taxation, and are also responsible for ensuring the money is spent in the best interests of the UK.
There are a number of areas where you may have to pay
Income Tax now or in the future. Common areas are highlighted below (other areas are covered on the
gov.uk website):- Tax on your salary.
- Income from property.
- Interest on savings.
- Dividend payments.
These are all explained further at the links below.
There are 2 useful things to understand before reading this section further:
- Gross pay and Net pay. Gross pay is the total payments you receive prior to any deductions (your salary, Longer Separation Allowance (LSA), Get You Home (GYH) etc). This is on the left hand side of your payslip. Net pay is the payment you receive into your account once all the deductions have been taken off (tax, accommodation charges etc).
- Tax code. On your payslip, you will see a tax code in the tax details section. 1257L is the standard tax code, or S1257L if you pay the Scottish rate of tax. Your personal allowance (see the Tax on you Salary section) is the number (in pounds) multiplied by 10 - this is the amount of money you can earn that is not taxed. L is the standard letter, which means you're entitled to the standard tax-free personal allowance. You may have an M if you have successfully applied for Marriage Allowance. The full list of tax codes is on the gov.uk website. Your code may change if you have to pay tax on interest, property income or dividend payments.
My observations. My thoughts on the tax requirements at the links:
- If you have lots of income streams, the calculations will get more complicated. When you complete a Self Assessment tax return, however, HMRC will tell you how much you owe.
- With all the interest calculations, you can hopefully see the value of an ISA. Interest, dividends and capital gains (will be covered in a future section) within an ISA aren't taxed. This can save you a huge amount on your tax bill!
