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Income Tax: how does it work?

 
 
Leo
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      06-20-2008, 02:51 PM
This is going to sound like a stupid question, but I've just moved to
the UK and I have no idea how the income tax system can work if no-one
files tax returns - and no-one seems to be doing it. Everyone I ask,
including my employer, just says, oh, you won't need to do that. How
does the government know how much tax I'm supposed to pay (I can
understand that they know how much I have already paid)? What if I've
paid too much? What if I haven't paid enough?

I've already worked out that work expenses aren't tax deductible, but
aren't there different rates or rebates if you're married (for
example) or have interest from savings, or, well, whatever?

Leo.
 
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Ronald Raygun
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      06-20-2008, 03:45 PM
Leo wrote:

> This is going to sound like a stupid question, but I've just moved to
> the UK and I have no idea how the income tax system can work if no-one
> files tax returns - and no-one seems to be doing it. Everyone I ask,
> including my employer, just says, oh, you won't need to do that. How
> does the government know how much tax I'm supposed to pay (I can
> understand that they know how much I have already paid)? What if I've
> paid too much? What if I haven't paid enough?


You can always file one if you want to.

Your employer sends information to the tax man about how much you earn,
and deducts what he thinks will be the right amount of tax.

> I've already worked out that work expenses aren't tax deductible,


Oh but they are.

> but
> aren't there different rates or rebates if you're married (for
> example)


Not any more.

> or have interest from savings, or, well, whatever?


Interest from savings normally already has tax taken off at source.
Only if you're a higher-rate taxpayer would you need to pay extra tax
on your interest.

 
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Rob graham
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      06-20-2008, 05:41 PM
> Interest from savings normally already has tax taken off at source.
> Only if you're a higher-rate taxpayer would you need to pay extra tax
> on your interest.
>


Some National Savings can be a problem here.

Rob Graham


 
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Daytona
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      06-20-2008, 06:15 PM
On Jun 20, 3:51*pm, Leo <(E-Mail Removed)> wrote:
> This is going to sound like a stupid question, but I've just moved to
> the UK and I have no idea how the income tax system can work if no-one
> files tax returns - and no-one seems to be doing it.


Pay As You Earn (PAYE) is the system -
http://www.google.co.uk/search?hl=en...UK%7CcountryGB

Daytona
 
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GSV Three Minds in a Can
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      06-20-2008, 06:49 PM
Bitstring <(E-Mail Removed)>, from the wonderful
person Rob graham <(E-Mail Removed)> said
>> Interest from savings normally already has tax taken off at source.
>> Only if you're a higher-rate taxpayer would you need to pay extra tax
>> on your interest.
>>

>
>Some National Savings can be a problem here.


And some Gilts purchased via POs in days gone by ..

--
GSV Three Minds in a Can
11,952 Km walked. 2,380 Km PROWs surveyed. 43.0% complete.
 
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Rich
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      06-21-2008, 09:40 AM

"> This is going to sound like a stupid question, but I've just moved to
> the UK and I have no idea how the income tax system can work if no-one
> files tax returns - and no-one seems to be doing it. Everyone I ask,
> including my employer, just says, oh, you won't need to do that. How
> does the government know how much tax I'm supposed to pay (I can
> understand that they know how much I have already paid)? What if I've
> paid too much? What if I haven't paid enough?
>
> I've already worked out that work expenses aren't tax deductible, but
> aren't there different rates or rebates if you're married (for
> example) or have interest from savings, or, well, whatever?
>
> Leo.


Leo,

This page has all the tax answers you probably need:-

http://www.direct.gov.uk/en/MoneyTax...oTax/index.htm

It's an official UK Government site, and has good info.

--
Rich
http://www.richdavies.com/saving-money.htm

** Posted from http://www.teranews.com **
 
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Andy Pandy
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      06-21-2008, 10:21 AM

"Leo" <(E-Mail Removed)> wrote in message
news:(E-Mail Removed)...
> This is going to sound like a stupid question, but I've just moved to
> the UK and I have no idea how the income tax system can work if no-one
> files tax returns - and no-one seems to be doing it. Everyone I ask,
> including my employer, just says, oh, you won't need to do that. How
> does the government know how much tax I'm supposed to pay (I can
> understand that they know how much I have already paid)? What if I've
> paid too much? What if I haven't paid enough?
>
> I've already worked out that work expenses aren't tax deductible, but
> aren't there different rates or rebates if you're married (for
> example) or have interest from savings, or, well, whatever?


Compared to other countries the UK income tax system is a blunt instrument -
it's fairly simple and for most employees who earn under about 40,000 it's all
taken care of automatically. It's also strictly based on individual
circumstances, there is *no* allowance whatsoever for being married or having
kids.

Because it's obviously nonsense to expect people with 4 kids to be able to
afford the same tax as a single person on the same income, there is a separate
system of "tax credits" which are payable to most people with children and some
people without children on a low income. Despite the name, this has not linked
with the income tax system and although it's run by the same govt dept, HMRC, it
is a completely separate system which you need to make a separate claim for.

Employment income is taxed through PAYE as others have said and savings income
is taxed by the bank at the basic rate. So most people don't need to do tax
returns.

Some work expenses are tax deductible, but most of these would usually be paid
by the employer direct to you as expenses without being taxed, assuming the
employer has a "dispensation" which basically means his expenses get audited by
HMRC to prove he's not paying taxable payments through expenses. If there is
anything tax deductible which your employer isn't paying for, they will usually
tell you about it. Travel to your normal place of work is *not* tax deductible.

--
Andy


 
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Leo
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      06-23-2008, 12:19 PM
Thanks for the link, I'm working through it. As you say, should have
all I need.

What it seems to be saying is that, regarding income, I need to file a
return only if my non-salary income takes me into a different tax band
(ie above 36,000 or, below 2320). Otherwise I don't bother.

But re: expenses, I've been told that the the criteria is "wholly,
exclusively and necessarily" (or something like that), which means
that nothing I spend qualifies because it's not "necessarily". For
example, I go to a conference. I apply for funding to go (I'm an
academic) but don't get it. I go anyway, because if I don't go to
conferences I might as well kiss my career good-bye. It's wholly and
exclusively part of my job, but since I wouldn't lose my job if I
didn't go, it's not necessary and so not an expense. Same with
computer software (I can always use an pencil and paper - but I can't
claim for pencil and paper, because I should really just memorise the
data), books and journal subscriptions (no-one's forcing me to read
them, and if I really want to read them I can go to a library),
membership of professional bodies (not necessary for the job itself),
etc.

Just some of the things that are tax-deductible in Australia, my last
residence, but appear not to be here.

Is this correct, or have I been misinformed?
 
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PeterSaxton
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      06-23-2008, 04:25 PM
On 23 Jun, 13:19, Leo <(E-Mail Removed)> wrote:
> Thanks for the link, I'm working through it. As you say, should have
> all I need.
>
> What it seems to be saying is that, regarding income, I need to file a
> return only if my non-salary income takes me into a different tax band
> (ie above 36,000 or, below 2320). Otherwise I don't bother.
>

You need to file a tax return if you are requested to file one. You
also have to tell HMRC of any new sources of income.

> But re: expenses, I've been told that the the criteria is "wholly,
> exclusively and necessarily" (or something like that), which means
> that nothing I spend qualifies because it's not "necessarily". For
> example, I go to a conference. I apply for funding to go (I'm an
> academic) but don't get it. I go anyway, because if I don't go to
> conferences I might as well kiss my career good-bye. It's wholly and
> exclusively part of my job, but since I wouldn't lose my job if I
> didn't go, it's not necessary and so not an expense. Same with
> computer software (I can always use an pencil and paper - but I can't
> claim for pencil and paper, because I should really just memorise the
> data), books and journal subscriptions (no-one's forcing me to read
> them, and if I really want to read them I can go to a library),
> membership of professional bodies (not necessary for the job itself),
> etc.
>
> Just some of the things that are tax-deductible in Australia, my last
> residence, but appear not to be here.
>
> Is this correct, or have I been misinformed?


You are right about the expenses.

If these tools and expenses are necessary why doesn't your employer
provide them?
 
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Ronald Raygun
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      06-23-2008, 04:34 PM
Leo wrote:

> What it seems to be saying is that, regarding income, I need to file a
> return only if my non-salary income takes me into a different tax band
> (ie above 36,000 or, below 2320). Otherwise I don't bother.


Yes, or if you have other income which has not had tax deducted at
source, for example if you write anything and the publisher pays
you a fee.

> But re: expenses, I've been told that the the criteria is "wholly,
> exclusively and necessarily" (or something like that),


That's correct for employment income. If you were self-employed,
the "necessarily" part would be omitted. Bummer.

> which means
> that nothing I spend qualifies because it's not "necessarily".


It's not a simple as that. I suspect you are imposing a stricter
interpretation on "necessary" than is, er, necessary.

> For
> example, I go to a conference. I apply for funding to go (I'm an
> academic) but don't get it. I go anyway, because if I don't go to
> conferences I might as well kiss my career good-bye. It's wholly and
> exclusively part of my job, but since I wouldn't lose my job if I
> didn't go, it's not necessary and so not an expense.


This is a difficult one. It's not even certain that going to a
conference is part of your job at all, so in this case even the
"wholly and exclusively" tests are likely not satisfied, and so
there isn't even any point in wondering about the "necessarily" test.

It's important also to distinguish between your actual job on the
one hand, and your career on the other. Your career will span
several jobs, and any expense incurred mainly for the purpose of
furthering your career prospects is really of more benefit to you
long-term than it is to your current short-term duties.

If what you expect to learn at the conference is directly relevant
to the research you are doing now, or if you are even contributing
even is a small way to the conference, the expense may well qualify.
But if your attendance is more for "networking" to benefit your
future employability, it probably will not.

> Same with
> computer software (I can always use an pencil and paper - but I can't
> claim for pencil and paper, because I should really just memorise the
> data), books and journal subscriptions (no-one's forcing me to read
> them, and if I really want to read them I can go to a library),
> membership of professional bodies (not necessary for the job itself),
> etc.


This is where you're going too far. Membership of professional bodies
generally *is* an allowable expense, including journal subscriptions.
Most people don't claim for pencil and paper because it's too trivial
(but I dare say most academics don't actually buy their own pecils and
paper, but have them supplied free of charge by their employers).
Likewise computers are generally supplied for your use, and you're not
expected to pay for them.

If there is a particular item of computer software which is necessary to
help you carry out your duties more effectively or efficiently, I reckon
it would generally pass the "necessarily" test. But what would count as
evidence that it is indeed "necessary to help you ..."? It may well be
the fact that the cost is reimbursed by your employer. If you buy it
yourself, it may not be as necessary as all that. If it makes you more
efficient, you will have more time to do something else. What will you
do with that time? Go surfing? Then the expense would really have been
incurred for your private benefit.

 
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