Thursday, 11 December 2008

Understanding The Basics of UK Tax

Understanding The Basics of UK TaxThe word tax to anyone where they have their own business, are employed, or even on a pension is a concern. I have given you a simple guide to the different types of tax in the UK. It is essential for any man or woman to understand what each tax liability is, who has to pay them and how they work.

Tax is pay for the funding of public services. The government are accountable to the tax payers and have been democratically elected to take charge of the tax funds we pay.

Types of taxes that you may have to pay are under five categories. I have taken each one and explained exactly what they are founded on.

Income tax

This is main tax people pay and is dependent on your salary or earned income. The more you earn the more tax you pay.

You pay this from your wages, or business profits for the self employed, and some benefits also have income tax taken off (also state pensions and private pensions.)

Added to this are national insurance payments, it is meant to fund sickness benefits and pension funds.

Incidentally, income tax also comes off your savings, so any money put away after paying tax in the first instance, the government 'steal' a slice of that income too.

A nice little calculator where your tax can be worked out from your earnings:

Capital Gains Tax

If you sell assets there might be capital gains tax to pay on it.
Current rates can be found here:

Inheritance Tax

When you die, inheritance tax can take away most of what is passed on to your family.
A good guide to rates can be found here:

Stamp Duty

When you buy or sell property, there is stamp duty to be paid varying with the value of the house.

Current Rates can be found here:

Value Added Tax

Understanding The Basics of UK TaxThis is used to be a luxury goods tax but now it has spread to many basic items, it it another income tax basically on spending money that has already been taxed or has been taxed twice if your spending money had been saved in a bank or building society - In essence you have been taxed three times!
Current Rates are: Standard Rate 17.5% Reduced Rate 5%

Understanding The Basics of UK TaxEach year, no matter what government blind you with on statistics, the amount of tax you pay goes up, unless you earn less of course. Each year the cost of public services goes up so it is a natural course. So be very aware that when conducting any form of financial forecast you need to take into account the tax inflation that will be rise each year.

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