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TIPS: Financial Advisor Richard Earl

This week’s subject is: Tax in the UK: let’s make it clearer

Whatever your views on tax (and it’s a subject that does divide opinion), the fact is that certain taxes in the UK are just unavoidable. With so many taxes to take into consideration, the whole thing can be quite confusing!

We spoke to Independent Financial Adviser, Richard Earl about managing our taxes in the UK. With his expert advice, we aim to make the whole issue far more understandable.

Let’s talk to an expert

Money Matters started by asking Richard what taxes you can expect to pay in the UK. Richard explains that there are hundreds you could pay. However, the main personal taxes you’ll have to pay on the money that you earn are Income Tax and National Insurance contributions.

There’s also Capital Gains Tax – a tax you pay when you buy something and sell it for profit. Then there’s an unavoidable one – Value Added Tax. This is a tax that’s added onto the price of the goods you buy.

The importance of tax codes

Richard tells us that your tax code is extremely important because it determines how much is deducted from your salary. Your code will be sent to you in a letter from HMRC (Her Majesty’s Revenue and Customs).

If, for any reason your tax code is wrong or there isn’t one available to you, you’ll be put onto Emergency Tax. In this case you’ll pay 20% on every penny that you earn, which clearly isn’t right.

How much tax will you pay?

Richard explains that on earnings over £11,500 you’ll pay 20% tax, while on income over £45,000, you’ll pay 40% tax. These are, of course, this year’s figures and may change at the next budget.

As far as National Insurance is concerned, you’ll have to pay contributions on any income between £8,164 and £45,000.

If you become unemployed, you’re unlikely to have to pay any Income Tax or National Insurance. That is unless your benefits amount to more than your tax-free allowance of £11,500, which is unlikely.

The self-employed and sole traders have to pay the same taxes as the employed. You just need to inform HRMC of your employment status. At the end of the year you’ll need to complete a self-assessment form to determine how much tax you need to pay.

Leaving the UK

Richard tells us that if you leave the UK, you must let HMRC know so that you stop paying tax. You need to fill out a P85 form and your employer will give you a P45. Together they will help HMRC determine if you’ve paid the right tax, too little or too much. If you’ve overpaid, you will, of course, get a rebate.

Finally, we asked Richard where can you access more advice and information about tax? He said that is an excellent source of information.

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