income tax

= IT

A direct tax on an individual's income. In general, individuals can earn income without paying tax up to a threshold, with subsequent income giving rise to tax liabilities, usually at increasing rates as income increases (progressive taxation). In UK tax legislation income is not defined; amounts received are classified under various headings (see schedule), some of which are subdivided into cases. In order to be classed as income an amount received must fall under one of these headings. There are some specific occasions when the legislation requires capital receipts to be treated as income for taxation purposes, e. g. when a landlord receives a lump sum on the granting of a lease. In the UK the importance of the distinction between income and capital has diminished since income and capital gains are now charged at essentially the same rate. (Prior to 6 April 1988 capital was charged at 30%, whereas the top rate of income tax was 60%. ) The tax is calculated on the taxpayer's taxable income, i. e. gross income less any income tax allowances and deductions. If the allowances and deductions exceed the gross income in a fiscal year, no income tax is payable. In the UK, there are three tax-rate bands: a starting rate of income tax of 10% on taxable earnings up to £2090, a basic rate of income tax of 22% on taxable earnings between £2090 and £32, 400, and a higher rate of income tax at 40% on taxable earnings over £32, 400 (2005-06 figures). See also PAYE