Great Britain tax system is varied and complex in his structure. Taxation involves payments to at least two different levels
of
government: local government and central government . Local government is financed by grants from central government funds, business rates and council tax . Central government revenues are mainly:
income tax ,
national insurance contributions,
value added tax ,
excise duties;
capital gains tax
inheritance tax
and stamp duty .
It means that charge is put upon property value, transactions (that is every situation where transfers and sales come into play), licenses granting a right, and/or income. The amount of tax that every member of society has to pay is based on many complex calculations, different for every kind of tax.
Here however I would like to focus on those taxes that especially concern people coming to UK to work. That is why Income tax, National Insurance will be given broader analysis while as far as other taxes are concerned I will restrict myself to basic definition giving overall view of the whole system.
UK tax year runs from 6 April through to 5 April.
Funds provided by taxation are used by government to carry out the functions such as:
military defense
enforcement of law
and public order
protection of property,
redistribution of wealth,
economic infrastructure — roads , legal tender , enforcement of contracts, etc.,
public works,
· the operation of government itself.
Government also use taxes to fund welfare and public services , such as:
education systems,
healthcare systems,
pensions for the elderly,
unemployment benefits
energy, water and waste management systems,
public transportation.
Income tax
This tax is progressive. That means that the more you earn the more you pay. It is deducted from your salary before you receive it… this system is called Pay As You Earn. There are 3 tax rates currently in force:
Lower Rate (10%) payable on the first ¢2.090 of taxable income over the personal
allowance Basic Rate (22%) payable on incomes from £2.090 to £32.400 and no allowances are given
Higher Rate (40%) payable on all taxable income over £32.400
But there is more to it, as the amount of tax is calculated on the grounds of your tax code which in turn is related to insurance number. For example, a code of 512H means that you start paying tax after you have earned £5,120. The letter shown after your code defines your status.
L represents a basic personal allowance entitlement,
H a personal allowance plus married couple's allowance or additional personal allowance at basic rate
D represents a higher rate tax payer with no allowances.
OT means that no allowances have been given, and could be used when you have overdue tax returns, or that you have very complicated tax affairs
If the code ends with T it means that code is under review
If code ends with P it is age related for someone aged 65-74
If code ends with Y it is age related for someone aged 75 and oveNT means no tax – it is when your income is being taxed in another country
Occasionally if you have underpaid tax you tax code will begin with K and the number after the letter is the excess income that needs to be taxed
If you have worked before, your previous employer should give you P 45 and if you haven’t you should ask for a P46. After filling them in ,tax office will send you a form asking about your income and employment history. When you sent it back on the basis of this form tax office will issue you with a tax code and a copy will be sent to your employer.
If you have more than one job than you will have separate tax code for each employer. Your income in your second job will be taxed at basic rate if however your income from both jobs will not be over threshold you are due to be given tax refund at the end of your employment.
There are cases where Income tax is not paid: these include student loans, grants, scholarships, research awards and housing benefits from partners and spouses.
For the tax year 2005/2006 personal allowance is £4,895; for the over-65s it is £7,090; for the over-75s it is £7,220. On the first £2,090 you earn, you pay tax at 10%. For the tax year 2005/2006, from £2,090 to £32,400 it is 22%; and more than £32,400 you pay at 40%. But this higher-rate tax of 40% is only paid on the amount you earn above £32,400 - not on everything you earn.
All in all it pays off to take some interest over your tax code as you may end up paying much more than you have to. Unfortunately The Inland Revenue is known to make mistakes and one in 10 tax codes are incorrect. Most of the time it is because they have been given wrong information.