What is Income Tax?

In the UK, people have to pay tax on different types of income. This income can come from various sources:

  • Wages: Money you earn from a job.
  • Self-Employment Profits: Money you make if you run your own business.
  • Taxable Benefits: Certain benefits you may receive from the government that count as income.
  • Pensions: Money you receive when you retire.
  • Income from Property, Savings, and Dividends: Money earned from renting property, interest from savings, and payments from shares in companies.

Why Do We Pay Income Tax?

The money collected from income tax helps pay for important government services, such as:

  • Roads: Maintenance and building of roads.
  • Education: Funding schools and colleges.
  • Police Services: Keeping communities safe.
  • Armed Forces: Protecting the country.

How is Income Tax Collected?

For most workers, their employer automatically takes the correct amount of income tax from their wages. This is paid to HM Revenue & Customs (HMRC), the government department responsible for collecting taxes. This system is called Pay As You Earn (PAYE).

Example:

If you earn £2,000 a month, your employer will take a portion of that money for tax before you receive your pay.

What About Self-Employed People?

If you are self-employed, you are responsible for paying your own tax. This is done through a system called self-assessment. This means you have to complete a tax return each year, reporting how much money you made and calculating how much tax you owe.

Tax Returns

Sometimes, you may receive a tax return form from HMRC. It’s important to fill this out and send it back quickly with all the correct information.

Where Can You Get Help?

If you need help with taxes or completing forms, you can contact the HMRC self-assessment helpline at 0845 300 0627 or visit their website at www.hmrc.gov.uk.

Questions

Easy Level Questions

  1. What is income tax?
    • A) A fee for services
    • B) A tax on income
    • C) A payment for parking
    • D) A cost of living
    • Answer: B
  2. Who collects income tax in the UK?
    • A) The local council
    • B) HM Revenue & Customs (HMRC)
    • C) The police
    • D) Your employer
    • Answer: B
  3. What does PAYE stand for?
    • A) Pay As You Earn
    • B) Pay And Earn
    • C) Payment After Earnings
    • D) Pay All Year
    • Answer: A
  4. Which of the following is a source of income?
    • A) Buying groceries
    • B) Wages from a job
    • C) Paying rent
    • D) Watching TV
    • Answer: B
  5. What does income tax help pay for?
    • A) Shopping malls
    • B) Government services
    • C) Movies
    • D) Cars
    • Answer: B
  6. If you are self-employed, what must you do?
    • A) Pay no taxes
    • B) Complete a tax return
    • C) Get a job
    • D) Ask your employer
    • Answer: B
  7. What is a pension?
    • A) Money for vacations
    • B) Money received when you retire
    • C) Money from your savings
    • D) Money for food
    • Answer: B
  8. What is HMRC?
    • A) A shopping centre
    • B) A tax collection agency
    • C) A bank
    • D) A charity
    • Answer: B
  9. What happens if you do not send back your tax return?
    • A) You will get extra money
    • B) You may face penalties
    • C) Nothing happens
    • D) You get a fine
    • Answer: B
  10. Which of the following is NOT taxed as income?
    • A) Wages
    • B) Lottery winnings
    • C) Rental income
    • D) Self-employment profits
    • Answer: B

Medium Level Questions

  1. How is PAYE beneficial for employees?
    • A) It helps them save money.
    • B) It makes tax payment automatic.
    • C) It allows them to avoid paying taxes.
    • D) It gives them more income.
    • Answer: B
  2. What is the main purpose of income tax?
    • A) To fund entertainment
    • B) To support government services
    • C) To pay for personal expenses
    • D) To increase personal wealth
    • Answer: B
  3. How often do self-employed individuals need to submit a tax return?
    • A) Monthly
    • B) Quarterly
    • C) Annually
    • D) Biannually
    • Answer: C
  4. What must you report on a self-assessment tax return?
    • A) Your favourite colour
    • B) Your income and expenses
    • C) Your hobbies
    • D) Your family members
    • Answer: B
  5. Which of the following income types is subject to income tax?
    • A) Gifts from friends
    • B) Inheritance
    • C) Income from a job
    • D) Money found on the street
    • Answer: C
  6. What happens if an employer does not deduct the correct amount of tax?
    • A) You will get a raise
    • B) You may owe money later
    • C) You will be rewarded
    • D) Nothing will happen
    • Answer: B
  7. What is a taxable benefit?
    • A) Free gifts from your employer
    • B) Benefits that count as income for tax purposes
    • C) Discounts on products
    • D) Money saved in a bank
    • Answer: B
  8. Why might someone need to complete a tax return even if they are employed?
    • A) They like paperwork
    • B) They have additional income
    • C) They want to pay more tax
    • D) They do not need to file one
    • Answer: B
  9. What is the self-assessment helpline used for?
    • A) To pay your taxes
    • B) To get help with tax forms
    • C) To complain about taxes
    • D) To report tax fraud
    • Answer: B
  10. When is income tax usually deducted from wages?
    • A) At the end of the year
    • B) Monthly
    • C) Each pay period
    • D) Daily
    • Answer: C

Hard Level Questions

  1. What does it mean if you are on the higher tax rate?
    • A) You earn less money
    • B) You pay a higher percentage of your income in tax
    • C) You receive more benefits
    • D) You do not pay tax
    • Answer: B
  2. How is the tax amount calculated for self-employed individuals?
    • A) Based on their personal beliefs
    • B) Based on income and allowable expenses
    • C) Randomly by HMRC
    • D) By their accountant only
    • Answer: B
  3. If you fail to complete your tax return, what could be the consequence?
    • A) You may receive a bonus
    • B) You could face legal action or fines
    • C) You will get additional time to file
    • D) You will not pay any tax
    • Answer: B
  4. What is the first step to take if you receive a tax return form from HMRC?
    • A) Ignore it
    • B) Complete and return it
    • C) Throw it away
    • D) Call your employer
    • Answer: B
  5. How can income from property be categorized for tax purposes?
    • A) As a gift
    • B) As a loan
    • C) As rental income
    • D) As savings
    • Answer: C
  6. Which of the following is a common mistake when filing a tax return?
    • A) Reporting too much income
    • B) Forgetting to include all income sources
    • C) Paying too much tax
    • D) Submitting it on time
    • Answer: B
  7. How often do you need to update your tax information with HMRC if your circumstances change?
    • A) Once every year
    • B) Whenever changes occur
    • C) Only when they ask
    • D) Every five years
    • Answer: B
  8. What does the term ‘taxable income’ refer to?
    • A) The amount of income before tax
    • B) The final amount after all deductions
    • C) The amount of income that is subject to tax
    • D) The total income you wish to report
    • Answer: C
  9. If you have multiple sources of income, what must you do?
    • A) Only report one source
    • B) Report all sources on your tax return
    • C) Ignore the additional sources
    • D) Choose the highest source to report
    • Answer: B
  10. What is a possible outcome of underreporting your income?
    • A) You will receive a refund
    • B) You may be audited by HMRC
    • C) You will get a tax break
    • D) You will pay less tax
    • Answer: B

Answers Summary

Easy Level Answers

  1. B
  2. B
  3. A
  4. B
  5. B
  6. B
  7. B
  8. B
  9. B
  10. B

Medium Level Answers

  1. B
  2. B
  3. C
  4. B
  5. C
  6. B
  7. B
  8. B
  9. B
  10. C

Hard Level Answers

  1. B
  2. B
  3. B
  4. B
  5. C
  6. B
  7. B
  8. C
  9. B
  10. B