The percentage at which an individual or company is taxed is referred as basic tax rate. The United Kingdom uses a “progressive tax rate” structure. The level of tax charged rises as the amount of the individual or company’s taxable income increases.
According to the progressive tax rate system, people belonging to higher income bands need to pay more taxes according to their income level. After subtracting deductions and allowances, tax is usually applied to overall revenues from earned and investment sources.
The government generally taxes its citizens for the growth and development of the country. To construct and maintain the infrastructure used in a country. The collected tax will help to develop the land, society, and everyone living in it.
In the UK, the ‘basic tax rate’ is 20% on an individual’s taxable earned income, which exceeds your personal allowance or the blind person’s allowance, (if an individual is eligible) and falls under the basic rate band.
In the UK, a tax year runs from the 6th April to the following 5th April. If we consider the current tax year (2020/21), it has started on 6th April 2020 and will end on 5th April 2021.
For the year 2020-21, the basic rate band is £ 37,500.
For instance, if an individual had an income of £ 40,000 in the year 2020-21 and was qualified for the standard personal allowance, i.e. (£ 12,500 for 2020-21), he needs to pay an amount of £ 27,500 as a tax.
That individual with a taxable income of £ 40,000 will be liable to pay a tax rate of 20% on £ 27,500 (equivalent to £ 5,500).
In the UK and many other nations worldwide, the basic tax rate is levied on any taxpayer money like (Income from wages or salaries, investment earnings (dividends, interest), capital gains from investments, etc.
The amount of the income which is taxable from the taxpayer is taken and provided to the HRMC. The HRMC then uses the money collected for meeting various recurring as well as non-recurring expenses.
In the UK, the taxes are imposed based on certain thresholds that mean everything you earn; you don’t pay the same tax amount. HMRC sends a Coding Notice every year that tells an individual about their basic tax code rate, whether they fall under a basic rate of tax or not and how much tax he/she has paid.