7 things you NEED to know about tax ?

We’ve all heard it – “Oh yeah, I got a bonus this year so I’m up a tax bracket”, “Make sure you keep those receipts. You can claim up to 40 per cent of everything, didn’t you know?” 

No, no we didn’t. And chances are neither do you.

Everyone thinks they know everything about money and filing their taxes, but in fact, nobody knows anything. Including you.

So we’ve compiled a load of basic tax lingo in one handy go-to list. Worried you’re paying too much? Desperate to pay less? Then look no further. You can thank us later.

1. Tax years

‘Oh I know that one, it’s easy!’ we hear you cry. Well, do you really?

The tax year actually begins on April 6 and ends on April 5 of the next year. By our calculations the tax Christmas must fall on March 30 then…

2. HMRC

Stands for Her Majesty’s Revenue & Customs. Don’t worry, the Queen doesn’t get all your tax like some modern Robin Hood fantasy. It’s just a traditional title. HMRC is the government institution that processes all tax information.

3. Self assessment

All members of the public are required to inform the government of any taxable income they receive during the year.

For most of us, this is handled by the company we are employed by. But for all you freelancers out there, most (if not all) your pay will come in without being processed for tax. You are required to file your own tax return to HMRC, this is called self assessment.

You might need some further help if you’re a newbie to the whole ‘not going to jail for fraud’ thing. So head over to Citizens Advice for more information.

4. Income tax allowance

This is the amount of money you can earn in a year before you have to start paying tax on the rest of your income for that year.

It’s basically a threshold that once you go over, everything you get paid after is taxed at a certain rate depending on your salary level.

The lowest rate is 20 per cent, and the basic personal allowance is £10,600 before you start paying tax.

5. PAYE

Known to its friends as Pay As You Earn, this is the UK scheme for collecting tax national insurance contributions from employees of different companies.

See that you’re getting taxed on your pay slip? Well that’s because your employer is signed up to PAYE.

6. Income tax relief

The money you spend on certain things can be deducted from your income so that you don’t pay tax on it. This includes travel, so if you’re forking out for a travelcard to work every month, don’t forget to claim so you don’t get taxed on money you’re effectively not getting to spend.

7. Income tax code

This is a code given to you by HMRC so your employer deducts the right amount from your slip each pay day. It’s usually a three figure number followed by a letter.

Got all that? Well there’s a ton of extra information over at Citizens Advice that could prove handy. Enjoy!

For more money advice head here.