This section deals with the taxes that we pay to the Government and to our Local Authorities so they can provide services that we all use. Much of our own spending goes on things that we choose to buy for ourselves and our families to use but it doesn’t make sense for each of us to buy our own roads or policemen! These things need to be planned and purchased by the whole country.
Countries cost a lot of money to run. All the services that we use such as healthcare, education and roads need paying for. There’s the cost of rubbish collections, the police force and prisons as well as many more expenses. This includes everything from social security payments and overseas aid to money for museums, galleries and some of the television that we watch.
It is the responsibility of governments to pay for all of these things and the main way that they do this is by collecting money from us. This money is known as tax and we have to pay it whether we agree with what it is being spent on or not. The Government Department that is responsible for collecting taxes is Her Majesty’s Revenue and Customs, often shortened to HMRC.
There are lots of different taxes and these are collected from us in different ways. We pay some taxes directly to the Government and these are known as direct taxes. An example of this is Income Tax, which comes straight out of our pay and goes directly to the Government from us. With some other taxes, we may pay them as part of the price we pay for goods or services. These are called indirect taxes. An example of this is Value Added Tax (VAT). For example, when you buy a pair of socks, part of the price you pay is to cover the VAT that the shop will pay to HMRC when they sell you the socks. The tax gets paid when the goods are sold to you.
This section takes a closer look at taxes. Choose from:
Taxes on income (Direct Taxes)
The Government taxes people on the money they earn when they go out to work. Everyone gets a personal allowance, which is an amount of money we can earn before we start paying tax. Once we have earned above this amount, we pay a percentage of our wages in income tax. Some people get tax credits, which means they don’t have to pay as much tax. We also have to pay some of our wages in National Insurance.
Taxes on spending (Indirect Taxes)
As well as getting taxed on the money we earn, we also have to pay tax when we buy certain goods and services. The Government imposes tax on the manufacture and import of these goods and services and this cost is usually rolled in to the overall price that we pay. This sort of tax is often referred to as an indirect tax.
Taxes on capital (Direct Taxes)
Most people can appreciate that being taxed on our income is a reasonable way to pay for services we all use. However, over the years Governments have also found ways to tax the capital that people have built up. This capital may be in the form of property, cash or investments.