As a citizen of the UK, one of your primary obligations is to pay your taxes on time. Taxes are the primary source of a country’s resources; it is where the governments get the resources to offer administrative services to its people.
The taxes you pay in the UK can be divided into three main categories:
- Taxes paid on what you earn
- Taxes on what you buy
- Taxes on property owned
Ideally, it is worth noting that every amount you pay as a tax begins as money earned. The difference between types of taxes in the UK is at what point you are required to pay the tax.
The HMRC is responsible for the administration and collection of taxes in the UK. The tax receipts for the UK for the year 2020/2021 totaled £585.5 billion, showing a decrease of at least 7.7% from the previous financial year.
1- Income tax
Income tax is a progressive tax in the UK. This is one of the taxes that tend to cost individuals the most in the UK. Everyone employed has to pay some income tax depending on their income.
For this tax, individuals have to pay some proportion of the money earned to the government. This type of tax does apply to the money earned from your job, business, and other sources of income.
There is usually a certain threshold your income must meet to be liable for the income tax. It means in case your income falls below the set threshold by the government. You are exempted from paying the tax. The UK has also set some income brackets for income tax, which means the more you earn as income, the more you are likely to pay.
2 – Consumption tax (VAT)
Another area you are likely to pay your taxes is on consumption. Value Added Tax (VAT) is a type of tax that is charged on all the products and services that you purchase.
The standard consumption tax is 20% in the UK. This is a type of tax you are most likely to meet since you will spend on some items daily.
However, some products and services are exempt from consumption tax. These goods and services will normally be different depending on where you live. Some areas in the UK don’t charge VAT on products and services that they consider necessities, such as water, and VAT for luxuries.
For instance, in the UK, insurance is exempt from VAT.
3 – Property tax
Property tax is another type of tax you will pay for the property you own. This tax is usually levied on real estate, and how it works depends on where you live. In some parts of the UK, you will only pay property tax when buying property over a certain level.
First-time home buyers may be exempt from Stamp Duty tax in England and Northern Ireland. This type of tax is normally charged annually and is the property owner’s responsibility.
When renting a property, you are not liable to paying property tax, although the property owner may use part of the rent to pay the property tax. In most cases, the government may take the house away from you if you don’t pay the property tax on time. Therefore, you should clear your taxes on time.
The basic taxes in the UK include capital gains, income taxes, property taxes, value-added taxes, and UK inheritance taxes. These are mostly progressive taxes, meaning individuals with higher incomes are most likely to pay a higher rate. Every UK resident and citizen is liable to some type of tax.