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Stephanie Hawthorne, award-winning journalist, gets to grips with tax.

DO you remember the 1970s hit record “Popcorn” by Hot Butter? It was all the rage at Pye Records, where as a schoolgirl I started my first holiday job at the princely rate of 40p an hour.

I calculated my take-home pay to a nicety. What I didn’t bargain on was National Insurance contributions (NIC), too little even to count towards my state pension. A tax in all but name.

That was my introduction to the arcane world of PAYE (Pay As You Earn) and the P60 (the annual summary of earnings and tax taken).

Tax pays for health, education and so much more besides. It is levied either indirectly, such as VAT on many items at 20%, or directly, such as income tax and capital gains.

You name it – there is a tax for it.

For the current tax year ending April 5, 2022, everyone has a personal allowance of £12,570 that can be set against income before they pay any tax. (Scots pay slightly more than the rest of the UK with extra bands.)

The basic rate of tax in the UK (excluding Scotland) is 20%, with higher rates of 40% and 45% (Scotland has five bands ranging from 19% to 46%).

As well as income tax, there’s usually NIC to pay. Your employer, if you’re on PAYE, will deduct Class 1 NICS, which pay the state pension and other benefits.

You can sometimes make voluntary payments to catch up any gaps in your NI history to get the maximum pension possible.

If you pay tax, you’ll get a tax code that tells your pension provider or employer how much tax to deduct. You will find this on payslips and your P60 or P45 – a form you receive when you leave a job – or on your pension payslip. Some state benefits are also taxable.

Most employees and pensioners on PAYE do not need to complete a selfassessment form.

If you have rental income from property and income from shares (dividends) or capital gains from the sale of an asset such as shares or property, for example, you usually need to send a tax return to HMRC.

Higher rate taxpayers should also complete a self-assessment form to get pension tax relief from their pension contributions.

You can also send in a return if you want to make voluntary Class 2 NICS to boost your state pension.

A word of warning: you must complete a tax return if your self-employment income is more than £1,000 – so watch out if you have a lucrative hobby.

Always keep records and receipts of expenses. The expenses necessary to run a business or paid hobby can be set off against tax.

Register for Selfassessment and Class 2 National Insurance with HMRC. HMRC will then allocate you a Unique Taxpayer Reference (UTR) number.

You can cut the amount of your tax by paying into a pension and by transferring assets to a lower-earning spouse/civil partner. Make sure you use ISA and pension allowances to the full. It all helps.

Not paying tax is a serious business. You could also be faced with court action or risk being made bankrupt.

Everyone with a high income, property or capital gains should seek professional advice.

For older people on lower incomes who can’t afford to pay for tax advice, the charity service Tax Help For Older People is a good starting point, providing free expert help. Call them on 01308 488066, or find out more by visiting taxvol. org.uk. ■