Tax FAQ’s

IMPORTANT FACTS – I’m under 16 and working – do children have to pay income tax?

Children have a personal tax-free allowance each year (£12,500 for the 2020/21 tax year – the same as adults). They can have income (including interest) of this amount in the year without paying any tax. Most children won’t have income above this amount so won’t pay tax, but the same rules apply to them as to adults.

REAL LIFE EXAMPLE: Child stars such as Daniel Radcliffe or Emma Watson earned a lot more than the Personal Allowance when they were still children.

A parent can apply to have their child’s bank or building society interest paid without tax being taken off if:

  • the child’s income is less than their tax-free allowance
  • the child doesn’t get more than £100 interest from money given to them (or invested for them) by a parent 

IMPORTANT FACTS – What is an emergency tax code?

An emergency tax code is a code that the employer or pension provider uses on a special basis until HMRC has enough information about the person’s income to enable them to send the employer, and the person, the correct code.

It normally makes sure the person gets the basic Personal Allowance (and therefore some tax-free pay) but doesn’t take into account any other allowances or  tax relief the person may be entitled to. This may mean you end up paying the wrong amount of tax.

VIDEO- Quick explanation on emergency tax by a man with a lovely Irish accent. 

What about cash in hand?

It’s illegal for your employer to pay you cash in hand without deducting tax and National Insurance contributions from your wages. If you accept money in this way, you risk losing your employment rights and the right to some benefits, such as:

  • maternity or paternity leave
  • sick pay
  • Jobseeker’s Allowance

In addition you could end up having to pay the tax and National Insurance contributions yourself.

If you suspect your employer of not paying tax or National Insurance contributions on your wages you can report them in confidence using the Tax Evasion Hotline on Tel 0800 788 887. HMRC also have a confidential helpline about tax questions. The Tax and Benefits Confidential helpline number is 0845 608 6000.

Where does my tax go? What is it actually spent on?

The vast majority of income tax pays for the welfare service which includes all state benefits.  Overall figures on Government Income and Expenditure can be found here.From 2014, every taxpayer will receive a personal annual tax statement revealing how each pound taken from them by the Revenue is spent. 

There will be a visual illustration with a simplified breakdown of how taxes are spent showing how the biggest chunk of everyone’s contribution goes towards welfare.  You can read more about it here (original announcement) and here

How do I reclaim overpaid tax?

If you think you have paid too much tax then you will usually need to call or write to HMRC to sort this out. Overpaid tax may be given back to through your wages or through a cheque. HMRC contact details can be found on their main website under their ‘contact us’ section.

I’ve received a redundancy payment- do I have to pay tax?

An employer may make a redundancy payment to a person to compensate for ending their employment.

No national insurance would be payable on this redundancy payment, and you would only pay income tax on payments above £30,000.

Note this does not apply to payments of any unpaid wages or bonuses, where tax and national insurance will be charged as normal.

If you go to live or work abroad and become non-resident in the UK, you might still have to pay UK Income Tax – but only on your income from the UK. This includes income from savings, investments and renting properties. If you do need to pay, you may need to complete a Self-Assessment tax return.

You’ll be treated as non-resident from the day after you leave the UK if you can show:

  • you left the UK to go abroad permanently or your absence and full-time work abroad lasts at least the whole tax year
  • your visits to the UK are less than 183 days in a tax year and average less than 91 days a tax year over a maximum of four consecutive years

I’m going to work in another country- do I have to pay income tax? 

If you become non-resident, you won’t pay UK tax on your income from working overseas.

I live in the UK but I have income and a house in another country- do I have to pay tax?

You will usually have to pay UK tax on your overseas income or assets. However, the other country may want to tax you on your worldwide income – even if tax is due in the UK. But if it has a double taxation agreement with the UK you won’t normally have to pay the same tax twice. It works differently depending on the country but you can get full details from HMRC website. 

VIDEO- In 2012, Google, Starbucks and Amazon came under fire for tax avoidance.

I’ve seen a lot of newspaper stories about tax avoidance- what does it mean? 

This is the legal utilisation of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law.

Ways of doing this include changing your country of residence to a tax haven, or being a perpetual traveller. You can also set up a company or a trust in a tax haven which receives the money you make in the UK.

REAL LIFE EXAMPLE:  Tax avoidance can be seen as unethical. Take That star Gary Barlow and former England manager Terry Veneables were among 1,000 celebrities who received public criticism for sheltering almost £340 million in a legal tax avoidance scheme. Fully story is here.

You mentioned tax havens- what are they?

Tax havens are countries or territories where no or very low taxes are charged. Their tax regimes are usually designed specifically to facilitate tax avoidance. Countries such as Monaco, Bermuda and Switzerland, and places such as the Channel Islands (Jersey & Guernsey) are commonly regarded as tax havens.

REAL LIFE EXAMPLE: Philip Green (who runs the Arcadia Group which includes Topshop) was the focus of protests in 2010 as profits from his company were redirected to a company owned by his wife, who is a resident in Monaco. They therefore avoided paying £285 million of UK tax that would have been due if the company was owned by a UK resident. The full story is here.

Ok, what about tax evasion then?

This is a general term for not paying tax by illegal means.