Welcome to Finance Deal and Investment
"Financial planning isn’t just for “some” people – financial planning is for everyone. With our financial planning and investment services, we help you plan your finances, manage your wealth, and secure your future with expert assistance."
Follows Us On!
Income Laws
Income tax is a tax paid on income. However, you must note that not all types of income are taxable. Also, there is no minimum age at which a person becomes liable to pay income tax. What matters is the amount of your income and if your income is below a certain level, no tax is payable.
Income tax law divides various types of income into schedules. If an item comes within a schedule it counts as income and income tax must be paid on it. The most common schedules are Schedule E for employees and Schedule D for the self-employed.
How is income tax calculated
To calculate how much income tax is payable for a particular year, use the following steps:
Step 1: Add together your yearly income from all sources, including earnings, social security benefits, income from renting out accommodation, pensions and interest from bank and building society accounts.
Step 2: Take off any income which is exempt from tax, for example, certain benefits. Check whether you can claim tax relief on any of the money you have spent over the year. Deduct any tax relief.
Step 3: check which tax allowances you are entitled to. You will be entitled to a personal allowance (plus age related additions if appropriate) and you may be entitled to blind person's allowance. These allowances are deducted at this stage in the calculation, leaving income on which tax is payable. This is called taxable income.
Step 4: Multiply your taxable income by the appropriate tax rate. Different rates apply to non-savings income such as earnings and pensions and savings income such as interest from bank and building society accounts. You now have the amount of tax due to be paid that year, unless you are entitled to married couple's allowance (see below).
Step 5: If you are married or in a civil partnership, and one of you was born before 6 April 1935, you may be entitled to married couple's allowance. If you are eligible, 10% of the married couple's allowance is deducted from your tax bill at this stage.
Income which is tax-free
Examples of income which is exempt from tax include premium bond prizes, Housing Benefit, and Child Benefit.