How Does UK Tax Work? | Income Tax Explained and PAYE (by a Real Accountant)

The basics of income tax explained and PAYE (by a real qualified accountant). The UK tax system is a robust and efficient machine that ensures our government maximises its tax revenues in order to meet its public expenditure obligations. But how does this system actually work? And how does it work for you employees out there who pay income tax and national insurance through the PAYE system?

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⏱️ Time Stamps:
0:53 - Why do we pay taxes?
2:56 - Who and what powers actually decide how much tax we pay?
5:18 - An Introduction to Income Tax/PAYE
7:29 - How Income Tax and National Insurance is worked out on a typical payslip

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★ In 2021-22 the income tax bands are:

• Personal Allowance = £12,570 (0%)
• Basic rate = £12,571 to £50,270 (20%)
• Higher rate = £50,271 to £150,000 (40%)
• Additional rate over = £150,000 (45%)

The National insurance thresholds that you need to be aware of when paying yourself as a business owner.

☆ The Lower Earnings Limit (LEL) threshold is the point at which you qualify for state benefits such as your pension. As long as you pay yourself above this threshold then you will get your pension credit every year.

• £120 per week
• £520 per month
• £6,240 per year

☆ The National Insurance Primary Threshold is when as an employee of your Ltd company you start paying employees NI.

• £184 per week
• £797 per month
• £9,568 per year

The primary threshold is subject to national insurance at 12% between £9,568 and £50,270, and anything over that is at 2%.

After watching this video if you think a little deeper about taxation and income tax explained, is it a levy worth paying to live in a society where you know you will get your garbage collected regularly, you get healthcare when needed, you can rely on law & order enforcement, your kids will get an education and if you hit troubled times, there is a social security safety net by way of welfare?

Or do you feel a complete capitalist system where everything is private with little or no government intervention is better, where you pay no taxes but you arrange and pay for everything from health care to education yourself?

Some food for thought.

We hope this video has helped you understand some of the basics of the UK tax system and taken you one step closer to knowing your numbers.

★☆★ OUR MISSION ★☆★
Me & my team are dedicated to helping and empowering YOU to 'Know Your Numbers' so you can make calculated and informed decisions in your business, company and personal finances towards your definition of success.

★☆★ OUR PHILOSOPHY ★☆★
If you take care of your numbers (finances), your numbers will take care of you, your family and those you value the most.

🔴 DISCLAIMER
Our videos are for general guidance, education and empowerment in helping you understand accounting, tax and your numbers. They in no way constitute specific advice to your specific circumstances. Me & my team would be delighted to help you with your specific queries or accounting requirements through a formal engagement.

#Income Tax Explained #PAYE #How the UK tax system works