Income Tax (IT)
A direct tax on income. income is not defined in the UK tax legislation; amounts·received are classified under various headings or *schedules and these schedules are subdivided into cases. In order to be classed as income, an amount received must fall into one of these schedules. 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 have been charged at 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 <1,11d deductions exceed the gross income in a *fiscal year, no income tax is payable. In the UK (from 2001) the first £1880 of taxable income is charged at a *starting rate of 10%, after which the *basic rate of. income tax applies. For those on high incomes, *higher-rate tax is also charged. See also PAYE.
