HMRC Income Tax - Personal Tax Return Calculator from DNS

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A tax year runs from 6 April to 5 April of the subsequent year and the taxable income includes:

Salary / take-home pay received from employer, including benefits in kind like company vehicle
Self-employment income
Income for personal, state and occupational pensions
Benefits from social security
Interest received on savings
Income from dividends received / shares
Income from rental
Income received from a trust

There are certain exemptions or income from certain source 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.

Income Tax Calculator

Income Tax (£)

Net Income (£)

Income Tax (£)

Total Income Tax is calculated on the basis of Tax Bands. Below is the segregation of how you pay tax for each band-

Tax Free (£)

Basic Rate (£)

Higher Rate (£)

Additional Rate (£)

* This calculator is only for reference purposes. For accurate and detailed report, please consult with an accountant. *

HMRC PAYING INCOME TAX

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.

Taxable income – Band

Particulars	2016-17 (% of income/£ per year)
Essential rate	20%
Upper rate	40%
Additional rate	45%
Initial rate for savings income	0%
Dividend ordinary rate – for dividends otherwise taxable at the basic rate	7.50%
Dividend upper rate – for dividends otherwise taxable at the higher rate	32.50%
Dividend additional rate – for dividends otherwise taxable at the additional rate	38.10%
Starting rate limit	£5,000
Basic rate band	£0 - £32,000
Higher rate band	£32,001 - £150,000
Additional rate band	Over £150,000

National insurance contributions

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

Particulars	2016 - 2017 (£ per week)
Weekly Lower Earnings Limit	112
Weekly Primary Threshold	155
Weekly Secondary Threshold	156
Upper Earnings Limit	827
Upper Profits Limit	43,000 per year
Upper Secondary Threshold	827
Small Profits Threshold	5,965 per year
Lower Profits Limit	8,060 per year
Employment Allowance	3,000 (per year, per employer)
Apprentice Upper Secondary Threshold (AUST) for under 25s	827

Step 2: Compute if there is any tax relief for the money spent during a financial year. The money spent can be towards pension scheme or paying employment expenses. Such expenses are taking out from the total income. For self employed individuals, business expenses are reduced to arrive at taxable profit

Step 3: HMRC Income Tax Personal Allowance – Verify the entitled tax free allowances. People living in the United Kingdom are permitted a basic personal allowance on a daily basis. Personal allowance is less for income greater than £100,000 and people born before 6 April 1948*, are entitled to a high personal allowance, while it might be limited depending on the income. People who are differently abled – blind individuals can get a Blind Person’s allowance. Deducting the allowances, tax is payable on the remaining income referred to as taxable income.

Particulars	2016-17 (% of income/£ per year)
Personal allowance
Personal Allowance	£11,000
Personal allowance – Income limit	£100,000
Married couples’ allowance – Income limit	£27,700

Marriage allowance	£1,100
Married couples’ allowance – Born before 6 April 1935
Married couples’ allowance – maximum amount	£8,355
Married couples’ allowance – minimum amount	£3,220

Blind person’s allowance	£2,290

Dividend allowance	£5,000
Personal savings allowance
Personal savings allowance – basic rate taxpayers	£1,000
Personal savings allowance – higher rate taxpayers	£500

Step 4: Payable tax for 2016 – 2017 can be computed based on an Example: If the taxable income is £11,000 after subtracting the personal allowance from total income, an individual does not have any taxable income above the basic rate limit of £32,000. Hence, the tax payable is £11,000 * 20% = £2,200

Step 5: To claim married couple’s allowance, an individual should be in a civil partnership or married, and either of the two should be born before 6 April 1935*. If this statement is valid, 10% of the married couple’s allowance is deducted from the payable tax

The above mentioned steps may not hold good if:

an individual is self-employed and incurred a loss for the year
an individual was born before 6 April 1948, and made charitable payments under Gift Aid and because of the level of income, age-related personal allowances are reduced
an individual has an overseas income which is tax abroad

* In April 2013, the United Kingdom government cancelled all age-related personal allowance. During tax year 2015 – 2016 this was restricted to people born before 6 April 1948. However, this is same for everyone now due to increases in the basic Personal Allowance.

HMRC INCOME TAX ALLOWANCES

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 £5,000 from company shares, and others

Income Tax rates and bands

Band	Taxable income	Tax rate
Personal Allowance	Up-to £11,000	0%
Basic rate	£11,001 to £43,000	20%
Higher rate	£43,001 to £150,000	40%
Additional rate	over £150,000	45%

YOUR ACCOUNTING PARTNER – DNS ACCOUNTANTS

DNS Accountants is a skillful team of accounting and taxation professionals that helps clients with services ranging from tax planning to self assessment to business set-up. The firm helps owner managed small business and private individuals across the United Kingdom. DNS is an acknowledged firm of ACA’s or Chartered Accountants (CA) and the firm takes pride in saying that we are very helpful to our clients & deliver unmatched customer service and constantly help clients to manage their wealth. The firm’s learned team focuses on helping sole traders with business registration, tax filings and other services such as self-assessment, payroll management and bookkeeping. At DNS, we are constantly in touch with our clients and offer

FIXED price service
Consistent and transparent service
Certainty on tax base and taxation advisory

Other services
DNS Accountants offers taxation & accounting services to owner managed businesses and freelancers / contractors. For business owners and freelancers / contractors, it is difficult to keep pace with the ever changing government regulations and rules. Our expert team of chartered accountants and taxation professionals help clients in services ranging from bookkeeping to payroll to tax planning, and filing tax returns. DNS Accountants help clients focus on maximizing their wealth.