Taxes Defined

What is tax?

If you think of the United Kingdom as being one big club, then tax is the club's subscription that the members pay to the government every year for living here.

Why do I have to pay tax?

The government needs lots of money to run the country, one way or the other to pay for schools, hospitals, defense, roads, everything that you can think of. The way it does that is to collect money from the citizens here and to put it into one big pot, which is used to fund all of that expenditure. The point about the one big pot is quite important. If you don't like the government's defense policy, you can't hold back part of your tax. You've got to pay the tax that's levied on you, and the government then decides how to spend it.

What taxes do I need to be aware of?

Most people need to be aware of two taxes in particular. First of all, income tax. That tax is income of all sorts, earnings, interest, savings income and so on. There's then value added tax: VAT, which is levied on goods and services, the kinds of things that people buy. After that there is national insurance, that's charged at various rates on earned income. We then have capital gains tax, charged on the gains that people make on major assets that they sell, things apart from their own homes. And then finally, of grown importance, there's inheritance tax which is levied at rates up to forty percent on peoples estates when they die, and that's limited to the excess over three hundred pounds.