Income Tax / National Insurance
What is Income tax?
Everyone hates paying tax.However, we live in a country where paying tax is compulsory, so the best thing to do is make sure what y Income tax aka PAYE is required on all payments of salary, bonus or commissions earned by any one individual or within a company. The income tax payable through your psc is applied on to your gross salary paid from your psc direct to you as the employee of the company.
PAYE includes income tax and National Insurance which are deducted from the wages of your employees, together with your own National Insurance contributions on employee wages. This is paid to HMRC on the 19th of every month or if you qualify, on a quarterly basis. Other forms of taxes that you will need to be aware of include VAT returns and IR35.
Why do we pay income tax?
Unfortunately, because we just have to… it’s a non-negotiable one! Her Majesty’s Revenue and Customs (HMRC) determine the amount of tax you pay by allocating you with a tax code based on your past and current circumstances. Your limited company tax code reflects the amount in GBP you are entitled to earn before tax is deductible. The amount given to your limited company by the HMRC is spread over the financial year to ensure that consistent amounts of salary are earned through out.
Example, the tax code for 2011 – 2012 is 747L. This actually means that this tax code gives the individual £7,475 of tax free earnings for the financial year. This amount is then divided either by 52 if weekly paid or 12 if monthly paid, therefore meaning the allowances have been evenly spread out for the employee.
Where does my income tax go?
To the man we all love to hate… the tax man aka (HMRC). The money paid to the HMRC is used to run the country, and it helps pay for things like salaries within the public sector, defence and protection, education issues, social services, debt, transportation, energy and medical services.
