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How Do UK Self Assessment Tax Returns Compare To Other Countries?

Written by
Friday 12 August 2022
2 years ago

Everyone dislikes paying taxes, and there are complaints everywhere. But is the UK doing it correctly? Do other nations’ systems seem fairer? The underlying questions are always who pays what, whether that is fair, and how tax money is used, and while we would all agree that everyone should pay a reasonable amount in taxes, many people feel that paying too much is simply wrong. 

It might be challenging to determine your tax situation if you intend to leave the UK. For instance, learning there is no Double Taxation Agreement with your new nation of residence is typically bad news. In contrast, the UK expat tax rebate is a nice addition to your moving expenses. 

Knowledge provides you control and flexibility over your financial decisions when it comes to taxes.


What Is Income Tax Rebate?

A tax rebate is the HMRC’s repayment of income tax that you overpaid. One can be owing to you for a variety of reasons, and both those who are employed and those who are self-employed are eligible. Most people frequently choose not to submit an application for a tax rebate because they do not realise they are eligible.


Income Tax In The UK

In the UK, income tax is based on how much you make, and all income over a specific threshold is subject to taxation. After taking into account deductions and allowances, this includes investment income.

What the UK government refers to as “personal allowance”—which, as of the 2022–2023 tax year, allows you to earn up to £12,570—is not subject to tax.

The basic income tax rate will decrease from 20% to 19%, as declared by Chancellor of the Exchequer Rishi Sunak in the 2022 spring statement, though this isn’t anticipated to happen until at least 2024. Additionally, he stated that the National Insurance rate would increase by 1.25 percent in April 2022, leading many to wonder what the purpose of the income tax cut was.


Declaring Your Foreign Earnings

If you live in the UK and have income or capital gains from abroad, you typically need to file a Self Assessment tax return. However, some overseas income is taxed in a different way.

If all of the following apply, filing a tax return is not necessary:

  • You only receive dividends from abroad
  • You have no other income to disclose because your total dividends, including UK dividends, are less than the £2,000 dividend allowed.


Registering For Self-Assessment

If you don’t typically file tax returns, you must register by the fifth day of October following the tax year in which you received the money.

After registering, you’ll receive a mail with instructions.


When Should You Notify Hm Revenue And Customs Of Your Income?

  • You lease out real estate in the UK.
  • In the UK, you are self-employed.
  • You were a domicile of the UK for one of the five preceding tax years.
  • You have a pension from outside the UK, and you have additional untaxed income.

Note: If you have already filed a tax return and received tax relief through a “double-taxation treaty,” you do not need to submit your income to HMRC.


In The UK’s System, Who Pays What?

According to the Office of National Statistics, the UK has been collecting the most tax since the 1960; Our various taxes account for almost 30% of our entire national income. Our income tax, National Insurance payments, student loan repayments, and pension contributions account for about half of that amount. All the money that is directly taken out of our bank account but that we never see.

You are aware that our income tax payment is based on our earnings. By the time middle-class taxpayers pay income tax and their employer pays NICS, 28 per cent of their income has already been taxed by the government. This rises to 51% for taxpayers who pay higher rates.

Of course, there are additional taxes that we might have to pay. Businesses must pay 19 percent Corporation Tax on their profits, and many goods and services also have 20 percent VAT imposed on them.


Are You A UK Expat? Do You Have Your UK Tax Refund?

The UK tax system is not without its positive aspects. There are numerous tax breaks and allowances available. If you leave Britain to stay in another country after living in the UK for a substantial number of days, you are entitled to reclaim UK tax, according to these regulations. They are applicable to everyone who has worked and paid taxes in the United Kingdom, not just citizens.

You are qualified for an expat tax rebate in the UK if:

  • You didn’t use up all of your Personal Allowance before the end of the UK tax year.
  • You have unused tax deductions or exemptions for work-related costs.
  • You are considered a “non-resident for tax reasons” in the UK, pay UK income tax, and are employed abroad.
  • You maintain a residence in another nation while receiving a pension or rental income in the UK.


Filing A Tax Return

Your international income or gains should be reported in the tax return’s “foreign” section.

In order to qualify for Foreign Tax Credit Relief, you must include income that has already been subject to tax abroad.

The “Foreign Notes” section of your tax return contains instructions from HM Revenue and Customs (HMRC) on how to record your foreign gains or income.


How Are These Expat Taxes Different From Other Nations?

In affluent nations, income tax, social security, and VAT are the taxes that bring in the most money. Together, they account for an average of 70% of each government’s tax revenue.

The most noticeable disparities are in how much middle-class taxpayers are taxed in other nations, with Britain coming near the bottom.

According to OECD data from 2016, each nation’s share of its national revenue comes from:


  • Denmark: 45.9%
  • France: 45.3%
  • Belgium: 44.2%
  • Sweden: 44.1%
  • Finland: 44.1%
  • Italy: 42.9%
  • Germany: 37.6%
  • Portugal: 34.4%
  • Spain: 33.5%
  • UK: 33.2%
  • New Zealand: 32.1%
  • Canada: 31.7%
  • USA: 26%

This is a comparative review of similar more developed countries; not all of the countries are included in their statistics.

We can also quickly examine the revenue that various governments receive from taxing middle- and higher-income taxpayers using IFS data. According to that data, our middle class would be the most affected if Britain ever adopted the tax laws of one of the other European nations.


Who Is Responsible For Source Taxes On Passive Income?

The majority of nations tax passive income (such as interest, dividends, and capital gains) at the point of origin and/or require reporting in the personal and/or separate income tax returns.

The majority of nations (53 %) require both reporting in the tax return and source taxes. There is no taxation at source in over a quarter of the nations (26%) and all taxable passive income must be disclosed in the personal income tax return.


Your Personal Status Affects The Tax Deductions You Can Claim

Depending on the person’s status as a resident of the UK, the level of their tax liability on their earnings will vary. The Statutory Residence Test is used to assess this (SRT).

The individual’s domicile status can also have an impact on their tax liability, which is especially important given that many cross-border incoming assignees are likely to have a foreign domicile.

By enabling tax deductions, the government can dramatically affect the behaviour of its constituents. The only two nations (6%) where the taxpayer cannot benefit from a reduction in taxes by including personal deductions in the tax return are Australia and China. However, these deductions might lead to significant tax savings in over 58 percent of the countries, including the UK.

Personal deductions have a negligible effect in the second group of nations (35%) Such deductions are only permitted in South Africa to guard against revenue losses or in the event of retirement.


Why Is It Important To Comprehend Our Tax System?

The efficiency of a nation’s tax system has a significant impact on its ability to provide for its people. The quality of healthcare, education, security, social care, fire, police, and city authorities is determined by the amount of money allocated to each of these sectors. Prioritising public spending becomes more difficult when more elements are added, such as the extended lifespan of our elderly population. However, it doesn’t take attention away from the central function of budget distribution.

We can get e complete picture by looking into the specifics of which residency pays what taxes and who benefits from certain rates, cuts, allowances, or reliefs.

For instance, a reduced or zero percent VAT rate on specific commodities is intended to assist lower-income families. However, wealthier earnings gain the most because they have the means to purchase these products. Making everything subject to a 20 percent VAT might lead to greater revenue for the government, which could then be used to directly aid lower-income households through tax breaks or other benefits.

Tax regulation is still a challenging topic. It is beneficial to recognise the relative advantages of our system and assess your individual tax situation to make sure you are utilising all of the tax relief and exemptions to which you are entitled.

As we mentioned earlier paying taxes is a necessary evil and it’s something we all have to do, however, there are ways to ensure that you don’t pay too much tax and it starts by talking to the professionals at The Taxman UK.


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