Wednesday, 19 September 2012

Tax and the working woman

To all you women/mums who want to get back to work, tax can be a bit of a dirty word, but let’s face it, in the words of Benjamin Franklin, “The only thing that is certain in life is death and taxes.”

We’ve been paying tax in England for hundreds of years. First to the Roman Empire during its occupation of Britain, then to various Saxon kings, but you will also find many other references over the World Wide Web that talk of taxes peppered across history.

In fact, legend has it that Lady Godiva, who lived in the 11th century, rode naked through the streets of Coventry in return for her husband, Leofric, Earl of Mercia, reducing the high taxes on his tenants.

Yet it was the in late 17th century that a land tax was imposed by the government of the day, and it was this that provided its main source of income.

History tells us that “Income” tax was introduced by William Pit the Younger in 1799. It didn’t last, due to changes in political leadership, not to mention opinions, but eventually it became everyday life from 1842.

The good news is today we are all allowed a “Personal Allowance” – the amount of money you can earn free of tax. Here’s a reminder.

For the year 2012-13, those aged under 65, the personal allowance limit is £8,105, in the UK, which means you fall into the “Basic Rate” tax payer band, so long as you don’t earn over £34,370 that tax year. Anything you earn between £8,105 and £34,370 for part-time work or full-time work you will pay tax at 20%. See Income Tax – the Basics.

However, tax isn’t the only way you’ll see money deducted from your wages as National Insurance contributions kick in if you are employed. In this scenario you pay Class 1 National Insurance contributions if you earn between £146 and £817 per week. Then you’ll be paying 12% of anything you earn between those sums but there are different rates (See the National Insurance Contributions – the basics).

Further explanations can be found at HMRC as there are many different categories depending on your circumstances.

And if you want a potted history of National Insurance click this link. However, in a nutshell its first aim was to insure people against unemployment and illness. But it went on to provide state pensions and other benefits.

If someone employs you on a Pay As You Earn (PAYE) basis, they should work out your tax and National Insurance contributions for you, but it pays to know your facts in case they get it wrong. Just remember, for every penny you earn over your thresholds you should be paying tax or National Insurance.

If you are self-employed, there are tax reliefs you can claim so check this, too, on the tax reliefs page on the HMRC website. In fact, self employment is another ball game and quite rightly deserves a blog of its own. Hmm. Might get cracking on that one for another day.

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