Income Tax (Earnings & Pensions) Act 2003
The United Kingdom (UK) government passed the Income Tax (Earnings and Pensions) Act into law in 2003. The act contains provisions for applying tax to income derived from employment, along with income derived from Social Security benefits and pensions. The act also states how income tax must be collected by Her Majesty's Revenue and Customs Service (HMRC), including income included in the Pay As You Earn (PAYE) scheme.
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UK Resident Earnings
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You are subject to income tax for any tax year where you are resident in the UK, or domiciled in the UK. If you are domiciled in the UK, this means that you are normally resident in the UK, but happen to be living and working overseas temporarily and have demonstrated that you do not intend to reside permanently outside the UK. Your income for a given tax year includes all income received in that tax year, even if you are no longer in the employment paying the income when you receive the income. If you receive income in one tax year for work that spread over more than one tax year, the income is apportioned to each of the tax years when you did the work resulting in the income.
Employment Income Exemptions
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You do not have to pay tax on parts of your income under certain circumstances set out in the act. If you are driving a company vehicle, a mileage allowance is deducted from your taxable income and is not subject to tax if the vehicle you drive is a company vehicle. If you pay for training that is related to your employment, the amount you pay for training is deducted from your taxable income, and you do not have to pay tax on this amount of your earnings. For example, if you are working in the information technology industry and you pay for training to update your skills, the amount you pay for this training is deducted from your taxable income.
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Taxable Benefits
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Certain benefits, paid by the state to those in need are taxable, meaning that the payments attract income tax. Bereavement allowance is money paid regularly to a widow or widower, aged 45 or over following the death of a spouse or civil partner. Bereavement allowance is paid for 52 weeks following the death of the spouse or civil partner. Other taxable benefits include the Jobseeker's Allowance, paid to unemployed persons actively looking for work, and incapacity benefit, paid to those who are medically unable to work. If you are in employment, and you take maternity leave and you receive statutory maternity pay, this payment is included in your taxable income.
PAYE Repayments
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Sometimes, an overpayment of income tax means that HMRC has to repay the overpayment of tax. This may happen, for example, where the amount of income you earn in a tax year does not exceed the threshold for income tax calculation. UK income tax law allows you to earn a certain amount each year before your income becomes taxable. However, according to the act, there are certain circumstances where HMRC does not have to repay an overpayment of tax. For example, you will not receive a repayment if you were receiving Jobseeker's Allowance.
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