The Tax Breakdown
“In this world, nothing can be said to be certain, except death and taxes” – Benjamin Franklin
Accounting Stock photos by Vecteezy
Tax. A seemingly confusing (and boring!) topic, but when you peel back the layers, all of a sudden you can see the huge impact it has on our day-to-day lives. Keep reading to get a flavour of the different taxes there are, and how you can get to grips with the way they work!
WHAT ARE TAXES
Taxes are the money that people pay to the government (collected by HMRC) to fund public services, for example healthcare. The UK tax year differs from many countries, as it runs from 6th April to the following 5th April, in contrast to a more typical January – December.
Arguably the most crucial taxes to understand are Income taxes. This is what you pay on the money you earn. Earning between £0-£12570? Great news, you don’t have to pay income tax! This is known as your Personal Allowance. Those earning from £12,570-£50,270 will pay 20% income tax, and this rises to 40% for earnings between £50,270-£125,140. In the event that you are earning over £125,140, you will pay at a rate of 45%.
A WORD ON NATIONAL INSURANCE:
National Insurance (NI) is a payment that funds benefits related to unemployment, illness and retirement. When you are 16, you are issued a NI number, and this is needed to work in the UK. If you’re under 16 you do not need a NI number to work, as you won’t contribute to National Insurance (yet!).
Keen to learn more? Take a look at this explanation from moneyhelper on some fundamentals of National Insurance.
STAMP DUTY & TAX CODES:
Stamp Duty is the tax you pay when purchasing a house! Although you may not need to think about this just yet, it’s worth knowing about! Stamp duty is charged on properties costing over £250,000, or £425,000 for first time buyers.
Tax codes consist of 4 numbers and a letter, the most common tax code being 1257L. The 1257 (if you add zero!) tells you your tax-free allowance is £12,570! The L corresponds to the nature of your job (in this instance, L standing for someone with a full time or part time job).
Key Terms:Income Taxes – The amount you pay to the government from what you earn. Personal Allowance – The first £12,570 of your income that is tax free! National Insurance – Payment to fund benefits including unemployment and retirement. |
