Ever thought of what is it like to be fully exempt from income taxes on your salary?
Tax exemption exists in the United Kingdom which is also applicable to Hungarians working there. Here is a summary on how and under what conditions.
If you currently work in the UK then your personal income is exempt from tax under GBP11,000 (approx. HUF 3.6million) annual salary. So you don’t have to pay any personal income tax below this annual threshold. This should be regarded as minimum annual salary which is the accumulated gross salary earned through the year. The amount will be increased to GBP 11,500 in 2017/2018 and the government is keen to further leverage – put in force gradually - the limit of tax exemption to GBP 12,500 by the end of the current parliament cycle. This change is significant because it represents a 70% increase compared to 2010/2011. On the other hand, the amount of tax payable shrunk by almost 50% on average. The question then arises, what the government’s aim with this is because the parliament renounces its claim for a great deal of fiscal income.
The aim of the British government is to achieve full employment, to raise the standard of living for those earning less than average, giving them incentive to save, and to implement the proportional contribution regime. The increase in 2017/2018 practically means that employees who work 30 hours a week and earn the gross minimum wage, they will be fully exempt from personal incomes taxes. 1,3 million employees have become fully exempt this way since 2010. This rearrangement also means that, by 2019/2020 50% of common public charges will be paid by the upper 20% of the working society while 50% of common public expenses will be reallocated to the lower 40% of the society.
It should be emphasized that tax exemption in the UK is not in respect of the minimum wage but of a defined annual salary. Thus, your personal income tax is calculated progressively in the UK. Suppose you earn GBP 15,000 in a year, then you pay 0% tax till GBP 11,000 and you need to pay 20% tax ont he leftover GBP 4,000 so your payable income tax is GBP 800.
If you earn the minimum wage in the UK you can still be subject to pay income tax. Why? Because, if your pro-rated weekly wage exceeds the pro-rated weekly wage of the annual tax free limit, personal income tax will be deducted from your wage even though you haven’t reached the tax free limit in the whole year. Though the tax free minimum wage is in itself a rightful provision, living in a high cost country like the United Kingdom - particularly in London – can be challenging.