Here at Everest and Co Accountants we can assist you to compute your taxes in a prescribed format by HMRC. Tax computation is generally knows as SA302 for personal taxes and CT600 for companies taxes.
You can work out your tax by following these four stages:
There are several different tax allowances to which you might be entitled. However, at this stage of the tax calculation there are only two which are relevant: the personal allowance and the blind person’s allowance.
Every man, woman and child resident in the UK has a personal allowance. For most people, the personal allowance for the tax year starting on 6 April 2021 and finishing on 5 April 2022 is £12,570.
Despite its name, you do not have to be completely without sight to claim the blind person’s allowance. So if you have very poor eyesight, check if you are entitled.
You can find out more information on these allowances on What tax allowances am I entitled to?. Note, however, that some so-called ‘allowances’ are in fact nil rates of tax that are applied at step 3 below, and some are given as a tax credit or tax reduction at step 4 below.
If you qualify, some of your savings income might be taxed at 0% – that is, no tax will be due on it.
Next, there is the basic rate band, where most types of income are taxed at 20%.
Most people do not pay tax higher than the basic rate.
But for some people with higher levels of income, 40% and 45% tax rates can also apply.
In addition, you are entitled to a personal savings allowance (£1,000 for basic-rate taxpayers for 2021/22) and a dividend allowance (£2,000 for all taxpayers for 2021/22). These are not tax allowances as such; they are 0% rate bands of tax for savings income and dividend income respectively. We explain more about how these work in our page on savings income.
See What tax rates apply to me? for more details.
If you live in Scotland and are a Scottish taxpayer, there are Scottish rates and bands of income tax set by the Scottish Parliament that apply to your non-savings and non-dividend income. The UK rates and bands apply to your savings and dividend income.
Similarly, if you live in Wales and are a Welsh taxpayer, there are Welsh rates of income tax set by the Welsh Assembly that apply to your non-savings and non-dividend income. The UK rates apply to your savings and dividend income.
For example, if you and your spouse or civil partner claim the marriage allowance (transferable tax allowance), and your spouse or civil partner has given up part of their personal allowance, then you will be entitled to a tax reduction.
You may also be able to deduct foreign taxes paid on income which is also taxable in the UK, as part of a foreign tax credit claim. See What if I am liable to tax in two countries on the same income? for more information.
But take care: some deductions cannot create a refund, such as the notional tax paid on gains on UK life assurance policies or investment bonds.
You then need to consider whether you are liable to any tax charges, such as tax on Gift Aid donations, the high income child benefit charge, or tax on certain state pension lump sums.
Your income tax liability for a year is the total amount of tax you owe for that year after all available deductions plus any income tax charges.
You then compare this to the amount of UK tax you have already paid (such as tax you have paid through PAYE) – if your tax liability exceeds amounts already paid, the difference is called your balancing payment for the year.
If amounts already paid exceed your tax liability, you will be due a refund.
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Read through our FAQ section below.
Your records must show you’ve reported accurately, and you need to keep them for 3 years from the end of the tax year they relate to. HMRC may check your records to make sure you’re paying the right amount of tax.
There are many payroll software systems on the market for Start Ups, SME’s and large businesses. For our clients we we use Xero; for more information about Xero please visit their website www.xero.com/uk/accounting-software/payroll/
You will need to complete the following forms or maintain the equivalent digital records:
P11 Deductions Working Sheet
This form (or a computer-generated equivalent) must be maintained for each employee. It details their pay and deductions for each week or month of the tax year.
P60 End of Year Summary
This form has to be completed for and given to all employees employed in a tax year.
P45 Details of Employee Leaving
This form needs to be given to any employee who leaves and details the earnings and tax paid so far in the tax year. New employees should let you have the form from their previous employer.
When a new employee starts you will need to advise HMRC so that you can pay them under RTI. Some of the necessary information may be obtained from the P45 if the employee has one from a previous job.