Basic Rate of Income Tax

Definition

The basic rate of income tax in the UK is the rate at which income tax is charged on taxable income that falls within a specified range. For the 2016-2017 tax year, this rate is set at 20% and applies to the first £32,000 of an individual’s taxable income.

Examples

Example 1:
- An individual earns £30,000 a year. All of their income will be taxed at the basic rate of 20%, resulting in a tax liability of £6,000 (20% of £30,000).
Example 2:
- Another individual earns £40,000 a year. The first £32,000 will be taxed at the basic rate of 20%, resulting in a tax liability of £6,400 (20% of £32,000). The remaining £8,000 will be taxed at the higher rate of income tax, which, for the 2016-2017 tax year, is 40%.

Frequently Asked Questions (FAQs)

What is the basic rate of income tax in the UK?

The basic rate of income tax in the UK is currently 20%, and this rate is applied to taxable income up to a certain threshold, which for the 2016-2017 tax year is £32,000.

How is taxable income determined?

Taxable income is income that has been reduced by allowable deductions, reliefs, and allowances. It includes earnings from employment, self-employment, pensions, and savings interest.

Are there any changes to the basic rate of income tax for subsequent years?

Tax rates and bands are subject to change annually in the UK budget. It is essential to check the latest updates from HM Revenue and Customs (HMRC) or consult with a tax advisor.

What happens if my income is above the basic rate threshold?

Income above the basic rate threshold (£32,000 for the 2016-2017 tax year) is taxed at the higher rate or additional rate, depending on the total level of earnings.

Can I reduce my taxable income?

Yes, taxable income can be reduced through various allowances and deductions such as personal allowances, contributions to pension schemes, and charitable donations.

Higher Rate of Income Tax: A higher band of income tax that applies to taxable income above the basic rate threshold, currently set at 40% for the 2016-2017 tax year.
Additional Rate of Income Tax: The highest income tax band, applicable to taxable income over a certain threshold (above the higher rate band), and set at 45% for the 2016-2017 tax year.
Taxable Income: The portion of an individual’s or corporation’s income that is subject to income taxes after allowable deductions and exemptions.
Personal Allowance: The amount of income an individual can earn before they start paying income tax. For the 2016-2017 tax year, the personal allowance is £11,000.

Online References

Suggested Books for Further Studies

“UK TAXES Explained” by Laura Summers – An in-depth guide covering all aspects of UK taxation, including income tax.
“Tolley’s Income Tax” by David Smailes – A comprehensive book loved by tax practitioners for insights into UK income tax.
“Bloomsbury’s Tax Rates and Tables 2016/17” by Rebecca Cave – Provides current tax rates and thresholds for the 2016-2017 tax year and extensive commentary on UK tax law changes.

Accounting Basics: “Basic Rate of Income Tax” Fundamentals Quiz

### What is the basic rate of income tax in the UK for the 2016-2017 tax year? - [x] 20% - [ ] 15% - [ ] 25% - [ ] 30% > **Explanation:** The basic rate of income tax in the UK for the 2016-2017 tax year is set at 20%. ### Up to what amount of taxable income does the basic rate of 20% apply for the 2016-2017 tax year? - [ ] £20,000 - [x] £32,000 - [ ] £45,000 - [ ] £50,000 > **Explanation:** The basic rate of 20% applies to taxable income up to £32,000 for the 2016-2017 tax year. ### What happens if your income exceeds the basic rate threshold? - [ ] Income is taxed at a lower rate. - [ ] No additional tax is applied. - [x] Income above the threshold is taxed at the higher rate. - [ ] All income is taxed at the basic rate. > **Explanation:** Income above the basic rate threshold is taxed at the higher rate. ### What is the personal allowance threshold for the 2016-2017 tax year? - [ ] £10,000 - [x] £11,000 - [ ] £9,000 - [ ] £12,000 > **Explanation:** The personal allowance for the 2016-2017 tax year is £11,000. ### Can personal allowances reduce taxable income? - [x] Yes, personal allowances reduce the taxable income. - [ ] No, personal allowances do not affect taxable income. - [ ] Only for those over 60 years old. - [ ] Only reduce tax on savings. > **Explanation:** Personal allowances reduce the taxable income by being deducted from gross income. ### Higher rate of income tax starts on income exceeding which amount for the 2016-2017 tax year? - [ ] £40,000 - [x] £32,000 - [ ] £50,000 - [ ] £29,000 > **Explanation:** Higher rates of income tax for the 2016-2017 tax year start on income exceeding £32,000. ### What is taxable income? - [ ] The same as gross income - [ ] Income after sales tax deduction - [ ] Only earned income - [x] Income after allowances and deductions > **Explanation:** Taxable income is income after allowable deductions and exemptions have been subtracted from gross income. ### What is the higher rate of income tax for the 2016-2017 tax year? - [x] 40% - [ ] 30% - [ ] 35% - [ ] 50% > **Explanation:** The higher rate of income tax for the 2016-2017 tax year is set at 40%. ### To which type of taxpayers does the additional rate of income tax apply? - [ ] All taxpayers - [ ] Only taxpayers under 60 years - [ ] Only those eligible for tax credits - [x] Taxpayers with income above the higher-rate threshold > **Explanation:** The additional rate of income tax applies to taxpayers whose income exceeds the higher-rate threshold. ### Taxable income includes which types of income? - [ ] Just employment earnings - [ ] Only rental income - [x] Earnings from employment, self-employment, pensions, and savings interest. - [ ] Just business profits > **Explanation:** Taxable income includes earnings from employment, self-employment, pensions, and savings interest.

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