Is my tax calculation just based on the money I earn?
There are lots of things that can factor into the amount of tax you pay. Examples include:
- Married Couples Allowance, for married couples where one spouse was born before the 6th of April 1935. Couples born after would use Marriage Allowance instead, where one spouse transfers part of their Personal Allowance to the other. This can be useful if either of you isn’t getting the full benefit of your Personal Allowance.
- Registered blind people can get a boost to the tax-free portion of their income, on top of their normal Personal Allowance.
The tax you owe can also be affected by the rate of NICs you’re paying, any Student Loan repayments you’re making and whether you’re doing any work overseas. Working for a non-UK employer abroad, for instance, can mean your tax is different from someone who works full-time in the UK.
Two other big factors affecting your tax are your tax code and your Personal Allowance. HMRC uses your tax code to work out your entire tax calculation, and to take any special circumstances affecting you into account. That includes the Personal Allowance you qualify for, so it’s really important to make sure your tax code’s correct.
Another thing that can affect your tax calculation is any “salary sacrifices” you’re making in exchange for benefits from your employer. You also need to keep an eye on any pension plan contributions you’ve made. Both of these can change the amount of tax you owe.
The big thing that the taxman can’t always consider is any tax allowances or deductions you’re eligible for. Basically, HMRC won’t automatically have all the information it needs to get your tax calculations right. When you’re reaching into your own pocket for certain types of essential work travel, for instance, the cash you’re spending can qualify you for tax relief.
If you’re self-employed and working under the Construction Industry Scheme (CIS), there are some extra rules about the tax you pay. The main thing to understand is that you’re losing 20% of your pay directly to the taxman before you even get it. This can be a real problem sometimes, because it could mean you end up not getting the benefit of your Personal Allowance. Since you’re self-employed, you’re also paying different kinds of National Insurance.