Tax Law In UK: A Brief Overview Of Taxes
Taxation in UK takes place at two levels – Central Government and Local Government. The central government earns it revenue from value added tax (VAT), income tax, fuel tax, corporation tax and contributions for National Insurance. The local government on the other hand extracts the revenue from council tax, England and Wales’s business rates, funding from central government, on-street parking charges and fees etc.
Taxes were introduced in England during the late 17th century in form of Land Taxes and then gradually different forms of taxes were introduced. Today, the majority of the government revenue comes from income tax followed by contributions from National Insurance and then followed by VAT and the fourth largest contributor is corporation tax. For clients of companies such as tax issues are, quite simply never an issue
Income tax and National Insurance contributions are charged on the income earned by an individual. National Insurance contributions are charged at around 20%. However, there is a personal allowance on income tax. This is the limit up to which taxes are not charged. Beyond that allotted level of income, paying income tax is mandatory. The tax-free allowance for 2012-2013 is £8105.
This is the local taxation that is applicable in Wales, Scotland and England. This type of tax is used for funding all the services that the local government provides. This council tax is applicable in all the three countries. Residential property is the actual basis for this tax and there is an annual levy on every property. Single people do get discounts on this type of tax.
Value Added Tax Or VAT
This is the 3rd largest government revenue source. The rate of the Value Added Tax is 20% and is levied on all services and goods that are supplied. Literally, it is ‘NOT ALL GOODS AND SERVICES’. Obviously, there are some exemptions and some goods and services have lower VAT at 5%. The basic idea is to reduce the tax burden on those items that are essential goods and services, but those that are luxury items will be heavily taxed.
This is the tax that is levied by the government on vehicles, gambling, tobacco, alcohol and motor fuel. Excise tax is inland tax and is an indirect tax on citizens. Government charges excise duties on sellers or producers. In turn, the producers or the sellers try and recover the tax from buyers by increasing the prices of the goods.
This is one of the major sources of government revenue. This is the tax that the profit making companies are required to pay on any profit the make. This tax also applies to profits made by non-UK resident companies that have permanent establishments in UK and trade in the EU. According to tax issues for corporations depend on a businesses’ location and countries of operation.
This is the rate or the tax that needs to be paid on any non-domestic property that is occupied. Business rates are the other name of a property tax that is charged after assessing the non-domestic property using some ratable value in terms of pounds. This ratable value is actually determined as the annual amount at which the property could have been let for on the date of valuation. According to tax issues for businesses vary from company to company.
This is the amount that must be paid by every employer, employee and self-employed person. The amount to be paid is determined by various factors and the calculations are pretty complex.
There are several other types of taxes like capital gains tax, motoring tax, stamp duty and inheritance tax. However, good news is that there are various tax exemption options available as well that can help people to save paying so much tax.
Ali Asjad is a freelance tax consultant based in Sweden. He has more than 15 years of experience working with multinational corporations. He also writes about tax issues.