Home » Eng Accounting » I » Income tax

Income tax

Direct taxation levied on all persons receiving an income above a minimum threshold. The threshold varies and is mainly determined by the current level of personal relief; the latter depends on the status of the taxpayer, i.e. whether married or single, or above a certain age. After all permissible deductions have been made the balance of income is taxed at a rate fixed by the Chancellor of the Exchequer. This rate is usually on a sliding scale with higher taxes for higher incomes. The basic tax rate, i .e. that applying to the main section of the sliding scale, is known as the standard rate of tax. Thisis the rate used when tax is deducted by a payer at source. This can mean that the tax then paid is incorrect – the recipient may be liable at a higher rate or, if below the threshold, may not be liable to tax at all. The necessary adjustments are made by direct payment to the Inland Revenue or by a refund from them. The need for any adjustment will appear from the annual return of income that must be completed by all potential taxpayers,

Income tax does not apply to wealth or expenditure. These latter fields are covered by other forms of taxation. Expenditure is indirectly taxed in the form of value added tax, which replaced the old purchase tax. Wealth can also be taxed where a wealth tax exists. This is projected for the United Kingdom but not yet enacted. Instead levies may be made when wealth is transferred from one person to another by way of gift or legacy. Levies are also made on increases in wealth through capital gains tax.

Reference: The Penguin Business Dictionary , 3rd edt.