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HMRC, otherwise known as HM Revenue and Customs, regularly sends out correspondence to help keep Britons in the loop about their tax affairs. While HMRC is responsible for collecting taxes, the Revenue will also help individuals to understand what they need to pay and what they will be exempt from. As the new tax year approaches on April 6, there will be many changes Britons will have to navigate.
Amongst these are Personal Allowance, which is the amount of income Britons will not be required to pay tax on.
To help Britons understand the changes they will be subject to, HMRC is sending out letters with an important update.
Some have already received this correspondence, but for others, keeping an eye out for it in the post will be important.
The letter, which is confidential, is specific to individuals and their personal tax affairs.
It is frequently referred to as a tax code notice and will inform Britons how their tax-free amount has been calculated.
The information contained within this letter will be relevant for the forthcoming tax year, and so it will be important to pay attention.
The letter reads: “This is to tell you your tax code(s) for April 6, 2021 to April 5, 2022.
“Your tax code is used by your employer(s) and/or pension provider(s) to work out how much Income Tax to collect from your pay or pension.
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“This tax code should match those shown on any future payslip(s) or pension advice slip(s) you receive.”
A tax code will be made up of different numbers and a letter, which tells a person more about their taxable status.
For example, 1250L has been the most common in the current 2020/21 tax year.
The letter L, for example, shows tax is deducted at a basic, higher or additional rate, dependent on a person’s income.
The numbers which proceed it indicate how much tax-free income a person is set to receive in that particular tax year.
Recently, a major announcement on Personal Allowance was released by the Chancellor of the Exchequer, Rishi Sunak.
He announced that while Personal Allowance would be rising for the 2021/22 tax year, after that point it would be frozen.
Up to and including the tax year ending April 5, 2026, the Personal Allowance and basic rate limits will be kept at the same level.
This means Personal Allowance will be at £12,570, while the basic rate limit kept at £37,700.
The higher rate threshold will be £50,270 for these years.
This has concerned some experts, who have said as salaries rise during this time period, many may find themselves paying more tax as they ascend into a higher band.
Some may wish to assess their finances and understand the implications of paying more tax in future.
Do you have a money dilemma which you’d like a financial expert’s opinion on? If you would like to ask one of our finance experts a question, please email your query to [email protected]. Unfortunately we cannot respond to every email.
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