How Personal Allowances Are Affected By An Individual's Tax Code

One thing that many taxpayers do not know is the fact that a good number of them

are entitled to personal allowances that can go a long way in ensuring that that the taxpayer cuts down on his or her tax liability. Now, the personal allowance in the UK is the amount of money that you will earn that is not taxable. Any pound above this amount will be taxed. It is therefore extremely important that you know your tax code because if you don't you are likely to pay more than what you are actually supposed to pay.

Personal Allowance Categories For 2011/2012

As already indicated, the personal allowance is actually the maximum amount of money that you be allowed to receive without having to pay taxes on it. Every financial year uses specific categories, which are: allowances for senior citizens (split between the 65 - 74 years olds) and the over 75 year olds.) The first category is allowed a personal allowance of 9,940 pounds, while the second category is allowed an allowance of 10,090 pounds. The rest of the UK taxpayers are allowed what is referred to as a standard allowance that stands at 7,475 pounds.

Other Allowances

The personal allowance is the common and most talked about allowance in the UK tax system. However, there are other allowances that will affect the tax code that the taxpayer is to find himself in. The other allowances include the married couples allowances (for married people,) and the Blind Person's allowance (which is meant for people who are blind.)

To arrive at one's tax code, all the allowances are added up and then divided by ten. After this, a letter is added at the end of the figure, to give you your tax code. For example, if the total amount of allowances that you have is 7,475 pounds, 1/10 of this will be approximately 747. This will lead you to a tax code 747L, which will be used in determining the total amount of money that you will be required to pay.

All in all, it is extremely important that you carefully look into the allowances that you are supposed to pay, because without looking at this, you can easily find yourself in a solution whereby you end up paying more than what you are actually supposed to pay. Even if you end up underestimating your taxable income, you may be required to pay an extra amount in future in order to correct this oversight in future.

by: David de Souza

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