Income Tax

Income tax is payable on any income whether its derived from working or investment. Every person however can earn a certain amont of money each year before tax kicks in. This is the Personal Allowance .

Most people are employed thereby paying their tax weekly or monthly under PAYE . But others are self-employed and pay their tax in arrears via two instalments a year.

Usually you wont have a choice as to whether youre classed as employed being taxed under PAYE or self-employed being taxed under Schedule D. Your job and the way you work will lead the tax man to determine your status although there are occasions when you can successfully challenge this.

You may however be both if you are employed by an organisation and in addition you have some freelance earnings. The taxman prefers people to be classed as PAYE because its simpler and you pay the tax quicker.

2009-02-17 00:00:00 © Moneyextra.com