This guide will take you through the basics of understanding tax, how to claim it back from the Inland Revenue and how to deal with self-assessment.
Pay As You Earn is the way in which your income tax contributions are spread over the financial year (i.e. April to April). Your employer deducts the amount of tax from your weekly or monthly wage packet and gives it to the taxman. The good news is that you don’t pay tax on all your wages – everybody is entitled to receive a certain sum each financial year without paying tax. Beyond this level, taxation is at a percentage of earnings. For current levels see the Inland Revenue web site at Inland Revenue.
Every once in a while, you could get a surprise in the post, in the form of an Inland Revenue rebate cheque. This usually arrives in April after the start of the new tax year, and occurs when you have paid too much tax during the previous tax year. Most people are unaware that they have been paying too much tax. One reason for a refund is if you have changed jobs during a financial year and there has been a delay in processing your P45 (your personal tax record, including details of your tax bracket and any allowances). This means your new employer will have no tax records for you and will have to temporarily use an emergency tax code. As the emergency code is at a high rate, any excessive tax you pay will be refunded at the end of the tax year.
From April 2003, Working Families’ tax Credit (WFTC), Disabled Person’s Tax Credit (DPTC) and Children’s Tax Credit (CTC) will be replaced by two new tax credits. These will be called Working Tax Credit and Child Tax Credit. For further details see Inland Revenue.
Self-assessment was introduced for people who have complex tax arrangements. These include the self-employed, business partners, company directors and people who pay tax at higher rates (40 per cent). It is designed to make it easier for people who would otherwise have to fill in numerous tax return forms or who pay different levels of tax on incomes from different sources. If you’re eligible for self-assessment, you need to apply to the Inland Revenue to receive your paperwork at the end of the tax year. Self-assessment taxpayers get an eight-page tax return form and a guide on how to complete it. For further details see Inland Revenue.