Tax
Tax is a compulsory contribution to the state. If not paid correctly there can be serious consequences. However, it is a recognised profession for people and businesses to find ways to avoid paying tax. There are solicitors and accountants who can give advice on the best way to save on taxes through legal ways.
Tax in the UK can relate to any number of things as there are many taxes for almost anything from purchasing goods to the amount of money earned.
Some of the most common forms of tax that most people come into contact with are VAT, Income Tax, National Insurance and Corporation Tax. There are also other taxes such as Motoring Tax, Stamp duty Land Tax and Capital Gains Tax.
Taxes which are paid usually go to the government, which then spends it on services such as schools, police, the NHS, transport and almost every type of public service.
VAT
VAT stands for Value Added Tax. This is a tax which is applied to sale transactions and is a form of indirect tax. VAT is a tax on the purchase price and is paid by the consumer. VAT is not only applied to products but also services, such as the service offered by solicitors. It is the type of tax which almost everyone will pay towards almost every day.
VAT is a percentage of the value of the goods or services which is added on.
VAT in the UK is important revenue for the government to receive. In the UK it is the third largest source of revenue.
The rate of VAT has varied and can be changed by the government. In recent years the standard rate has been 15%, 17.5% and is now 20%.
Income Tax
Income tax forms the largest revenue for the UK government. Income tax is on a person’s earnings, whether from through work or by other means. There are a number of different rates people’s incomes are taxed at which is decided by how much a person earns in the tax year.
At the moment there is a personal allowance which means anyone earning less than £7475 in a tax year will not be taxed. After earning more than the personal allowance, income will be taxed at different rates:
- Basic rate: £0 - £37,400 is taxed at 20%
- Higher rate: over £37,400 is taxed at %40
- Additional rate: over £150,000 is taxed at 50%
National Insurance
The National Insurance tax is the second largest source of revenue for the government. The National Insurance Contributions (NIC) paid by employers and employees go toward funds for the State Pension and other forms of social benefits. National Insurance is paid under the Pay as you earn (PAYE) system. This is when the tax is taken out of wages earned by employees.
Corporation Tax
Corporation tax is a levy on the profits of a business. The amount payable depends on the amount of profit made by a company. The main rate of tax at which corporation tax is worked out is at 26%.