The taxes in the United Kingdom are applicable at two levels, the local government level and the central government level. However, the major taxes on your income are levied only by the central government. If you know the taxable income levels and various allowances and exemptions available to you under the UK tax laws, you will be able to save considerably on taxes on your income. Certain items are counted as taxable income and other items as non-taxable income.
Items Counted as Taxable Income
• Earnings from your employment or your self-employment
• Majority of pension incomes, such as state pension, company pension and personal pension
• Interest earned on most of your savings, such as bank interest, excluding individual savings account (ISA), building society interest, interest from national savings, bonds or other investment accounts
• Income from shares or dividends
• Rental income
• Income that you receive from any trust, such as trust income or pensioner bonds
Items Counted as Non-Tax Deductible Income
• Income from state benefits, such as disability living allowance, pension credit, attendance allowance, Christmas bonus, winter fuel payments, lump sum bereavement payment, housing benefit, income-based employment allowance and support allowance, child benefit, maternity allowance, war widow's pension, industrial injuries benefit, bridging allowance for young persons, severe disablement allowance, etc.
• Interest on your savings, such as savings certificates and all ISAs
• Tax credits like working tax credit and child tax credit
• Winnings from premium bonds
Allowances and Reliefs on Income which is Taxable
Even though several items are counted as taxable income, you are entitled to treat a portion of your taxable income as tax-free during any specific tax year, such as
• Tax-free personal allowance, which will depend on your age and your total income
• Tax-free allowance for blind persons
• Allowance to married couples, including civil partnerships
• Reliefs on maintenance payments, such as payments to your ex spouse or your ex civil partner
• Other allowances, expenses and reliefs for employees and directors, including travelling in your job, expenses you met in your job like expenses for subsistence, special clothing and work tools, subscriptions and fees paid to professional bodies, home working expenses and capital expenditure
• Other allowances, expenses and reliefs for self-employed persons, like motor and travelling, advertising, business premises costs, etc.
It is advisable to consult a reliable tax professional to maximise your savings on your taxable income. Nowadays, the Internet has become a reliable source of information; you can take the help of that also.