Income tax in the United Kingdom
Income tax is a way for the government to collect money from the people who live and work in the United Kingdom. Let's say you have a toy store and you sell lots of toys and make money from it. The government wants to take a little bit of that money to help pay for things that the country needs, like schools, hospitals, and roads.
Now, let's imagine that you make 10 pounds from selling toys. The government says that you need to give them a small amount of that money. They call it income tax. In the UK, there are different levels, or "bands," of income tax depending on how much money you earn.
The first band is called the personal allowance. This is the amount of money that you can earn before you have to start paying income tax. Right now, it is around 12,570 pounds, which is quite a lot! So, if you make less than that, you don't need to worry about paying any income tax.
But let's say you make more than 12,570 pounds. For the next bit of money you earn, the government will take 20% as income tax. This is called the basic rate. For example, if you make 1,000 pounds above the personal allowance, the government will take 20% of that, which is 200 pounds.
If you make even more money, like 50,000 pounds, then you will have to pay a higher percentage of income tax. This is called the higher rate, and it is 40%. So, for that extra 50,000 pounds, the government will take 40% of it as income tax, which is 20,000 pounds.
But wait, there's one more! If you make a lot of money, like over 150,000 pounds, then you will have to pay an even higher percentage of income tax. This is called the additional rate, and it is 45%. So, if you make 200,000 pounds, the government will take 45% of that extra money as income tax, which is 90,000 pounds.
The good thing is that the money you earn before these higher rates still get taxed at the lower rates. This means that if you make 200,000 pounds, you don't have to worry about paying 45% on the first 12,570 pounds or 20% on the next 50,000 pounds. You only start paying the higher rates on the money you make above those amounts.
When do you have to pay this income tax? Well, usually, it's taken out of your paycheck automatically by your employer. They send the money to the government on your behalf. But if you're self-employed, you will need to calculate how much income tax you owe and send it to the government yourself.
So, income tax is like a little bit of money that the government takes from you when you make money, and it helps pay for important things that we all need in the United Kingdom.
Now, let's imagine that you make 10 pounds from selling toys. The government says that you need to give them a small amount of that money. They call it income tax. In the UK, there are different levels, or "bands," of income tax depending on how much money you earn.
The first band is called the personal allowance. This is the amount of money that you can earn before you have to start paying income tax. Right now, it is around 12,570 pounds, which is quite a lot! So, if you make less than that, you don't need to worry about paying any income tax.
But let's say you make more than 12,570 pounds. For the next bit of money you earn, the government will take 20% as income tax. This is called the basic rate. For example, if you make 1,000 pounds above the personal allowance, the government will take 20% of that, which is 200 pounds.
If you make even more money, like 50,000 pounds, then you will have to pay a higher percentage of income tax. This is called the higher rate, and it is 40%. So, for that extra 50,000 pounds, the government will take 40% of it as income tax, which is 20,000 pounds.
But wait, there's one more! If you make a lot of money, like over 150,000 pounds, then you will have to pay an even higher percentage of income tax. This is called the additional rate, and it is 45%. So, if you make 200,000 pounds, the government will take 45% of that extra money as income tax, which is 90,000 pounds.
The good thing is that the money you earn before these higher rates still get taxed at the lower rates. This means that if you make 200,000 pounds, you don't have to worry about paying 45% on the first 12,570 pounds or 20% on the next 50,000 pounds. You only start paying the higher rates on the money you make above those amounts.
When do you have to pay this income tax? Well, usually, it's taken out of your paycheck automatically by your employer. They send the money to the government on your behalf. But if you're self-employed, you will need to calculate how much income tax you owe and send it to the government yourself.
So, income tax is like a little bit of money that the government takes from you when you make money, and it helps pay for important things that we all need in the United Kingdom.