If you are about to move or have recently settled in the most beautiful city in the world, hello ya! Welcome to London!
However, like anywhere else in the world, you are going to have pay taxes. I wish somebody wrote this article for when I first moved to London as an expat over 10 years! But hey, no probs, I'm here exactly for this reason: make your life easier!
Please note that I am not a professional, so if you need specific accounting information and details you should think about employing a tax professional to handle your taxation. The official government website is also a great source of information.
The first thing to know is that the UK has many reciprocal agreements with many countries in order to avoid double taxation issues. The second important thing is that your taxation depends on your employment, assets and other income.
UK Government Tax Requirements
For those coming to live in the UK, any income you have will be eligible for tax.
Income includes the following:
- Your wages (salaried and self-employed)
- Any benefits
- Your Pension (state, company and personal)
- Interest on your savings
- Income from shares (dividends)
- Rental income
- Income paid from a trust
Everyone has a personal allowance. This is the amount of income you are allowed to receive before you pay tax. Currently, the standard personal allowance is £12,500. However, for those who earn over £100,000, the personal allowance is less.
Income tax rates
This is the amount of income tax you pay on the amount over your personal allowance depends on the size of your income. This is as follows:
Source: gov.uk
Other allowances
All savings interest is automatically taxed at 20%. Those on low incomes may be eligible for some tax back, and those on a higher tax rate might have to pay more.
You may also have tax-free allowances for:
- savings interest
- dividends, if you own shares in a company
- your first £1,000 of income from self-employment
- your first £1,000 of income from property you rent in London or the rest of the UK
National Insurance
National Insurance is a payment that is made by everyone living in the UK to pay for social security. If you live in the UK you’ll be required to apply for a National Insurance number.
How to pay your tax and National Insurance
Depending on your situation, there are different methods of paying your taxes.
Salaried work
If you are** employed **in a company, you’ll have tax deducted directly by your employer. This is known as Pay As You Earn – or simply, PAYE. Make sure to check that the deductions made are always correct.
Self-employed
If you are self-employed, then you will have to fill in a self-assessment form after the tax year ends (on April 5th). It must be submitted by January 31st of the following year. For example, for the year April 2018 to April 2019, your self-assessment for must be submitted by January 31st, 2020.
Do you need to complete a self-assessment tax return?
Even if you are in a regular salaried position, you might have to complete a self-assessment tax return if any of the following conditions apply:
- Any type of self-employment
- You receive £2,500 or more in untaxed income. For example, from renting a property or from investments or savings
- Your savings and investment income was £10,000 or more before tax
- You made profits from activities such as a second home or selling shares
- You are or were a company directory (unless for a non-profit organization and you didn’t receive any pay or benefits)
- You receive income from abroad
- You received dividends from shares and you’re a higher or additional rate taxpayer
- Your income was greater than £100,000
- You were a trustee of a trust or registered pension scheme
You can use this handy tool to check if you have to complete a self-assessment tax return.
Have you paid too much? Tax refunds
There may be occasions when you could make overpayments to the HMRC, Her Majesty’s Revenue & Customs. If any of the below occurs you might have paid too much:
- If you are working more than one job at the same time
- Have changed jobs many times
- Have been without a job for a period of the tax year
- Had a temporary tax number
- Are about to leave the United Kingdom
If you think you might be eligible for a tax refund, you'll need to contact the tax office and complete the required paperwork. If, in fact, you are owed money, it will either be refunded via your wages or by check or bank transfer.
The official government website provides all the information you need to understand the British tax system.
Was this article useful? Do you have any further questions about expats' tax in London? Let us know in the comments below and I'll get back to you as soon as possible.