HMRC income tax return and allowance

There are certain exemptions or income from certain sources that fall under the non-taxable bracket. Also, income tax liability does not have any age criteria. The only thing that matters is the income earned and if the income is below or above the taxable limit. For a taxable individual it is imperative, by law, to keep all the records of income and expenses that are claimed against tax. These records will be required if HMRC instructs to complete a tax return.

How income tax is calculated

The following steps will give an overview of how the taxable income and income tax payable is computed. Since, the rules for income tax are complex dns Accountants can help taxpayers with any tax issues they come across.

Step 1: Taxable income from all the sources, before tax, is added. For a fiscal year or financial year, this may include salary or take-home pay received or profit from self-employment, taxable social security benefits, rental income, interest on savings, and pensions. The non-taxable income is not included. This may comprise of pension credit, child tax credit, lottery winning, housing benefits, maternity allowance, working tax credit etc. This step will give a clear understanding of what is the total income for computing the payable tax.

Keeping track of important dates is essential for managing your tax responsibilities. and ensuring you don't miss out on potential refunds or allowances. Key dates include:

• April 6th 2025: The start of the new tax year.

• October 5th 2025 : Deadline for notifying HMRC of new sources of income.

• October 31st 2025 : Deadline for submitting paper Self Assessment tax returns.

• January 31st 2025 : Deadline for submitting online Self Assessment tax returns and paying any tax due.

By keeping track of these dates, you can ensure you're taking full advantage of all available income allowance options and avoiding penalties for late submissions.

While checking if the correct amount of tax has been deducted from the pay, it is also important to check if correct national insurance (NI) contributions have been deducted, so that the take-home pay amount is correct. NI contributions are computed on gross pay and it may vary for employees depending on the pension arrangements and income level.

For self-employed individuals, NI contributions have different rates, depending on the profits.

National Insurance Contribution Thresholds

To reduce income tax, individuals can leverage various allowances. The concept of allowance tax refers to the tax benefits derived from claiming these allowances. Key strategies include:

• Claiming the Marriage Allowance, which can transfer up to £1,260 of your Personal Allowance to your partner if they earn less.

• Utilising the trading allowance and property allowance to offset the first £1,000 of income from self-employment or property rental against your tax bill. By maximising these allowances, you can effectively reduce income tax and retain more of your earnings.

The amount of income tax paid each year depends upon:

• The amount of income above the personal allowance
• How much amounts falls in each tax band

Some income is tax-free and individuals don’t pay tax on:

• Interest on savings from savings allowance
• Income from Individual savings accounts (ISA), National savings certificates (tax-exempt accounts)
• The initial dividend amount of £500 from company shares, and others

Tax-free personal allowance 2024-2025