 |
|||||||||||||
|
|
 |
|
|
Roughly half the economic output of the country (what is known as Gross National Product or GNP) is produced by the Government – such things as health services, education, defence, policing, local council services, roads and welfare benefits. That means that they have to raise taxes in various forms equal on average to about half of our incomes. The biggest taxes are Income Tax, National Insurance contributions, VAT (value added tax) and Corporation Tax. Others include Capital Gains Tax, Inheritance tax, Council Tax, Stamp Duty, Insurance Policy Tax, Customs Duty and there are many more. Go here for more information on the various ways the government gets its hands on your money -http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/index.htm – and here - http://www.bized.co.uk/virtual/economy/policy/tools/government/gexpex.htm - for what it spends it on. Income Tax In the world of work, “tax” usually means Income Tax. Income tax is a progressive tax – that is that you pay a higher percentage the higher your income. You start by calculating your annual income. There are detailed rules for what’s in and what’s out but for most people this means your salary or wages. Then there are allowances - amounts that you are allowed to earn before paying tax. Everyone has a personal allowance and other allowances depend on circumstances. After deducting these you come to taxable income. For most people tax is calculated by multiplying taxable income by the Basic Rate of tax (20% at the time of writing). But if taxable income is higher than a certain limit (the Basic Rate “Band” - £37,400 at the time of writing) then tax is paid at the Higher Rate (40% attow) on the excess over that limit. For most people all this calculation is done by your employer and tax is deducted from salaries under the PAYE (Pay as you Earn) scheme. All the employee has to do is to give a new employer a P45 from his previous employer which details earnings and tax to date to set up the PAYE records in the new employer’s payroll system. And most sources of other income, like interest earned, have Basic Rate tax deducted at source. But if your affairs are a bit more complex you may be required by HMRC (Her Majesty’s Revenue & Customs) to fill in a Tax Return each year so that they can check that the right amount of tax has been collected. National Insurance Contributions (NICs) Although NICs sound like specific contributions to cover health, pensions and benefits they are not. The money just goes into the government’s central pot from which all expenditures are paid, so NICs are just another tax. Although your entitlement to some benefits, such as pension, does depend on your NIC record. And NICs are paid both by the employee and the employer. There are special arrangements for the self-employed and others who are not employed. All the systems in this area are based upon your National Insurance number. So when you’re given that for the first time, take care not to forget it or lose it. Employee’s NIC for tax year 2010-11 is 11% of earnings between £110 and £844 a week plus 1% of earnings over £844 a week. As with Income Tax most calculations are done by the employer’s payroll system with relevant information transferred between employers on the P45 form. Benefits The benefits system in the UK (sometimes known as the welfare state) was a massive reform following World War 2. Free health services, free education and unemployment and sickness benefits (the dole) were revolutionary improvements to the way of life of ordinary people. But the system has grown like Topsy and is now often regarded as ramshackle and sometimes even self-defeating. Take a balanced view – it ain’t perfect and it should be improved but it’s one hell of a lot better than no system. You can find advice on the possibility of claiming benefits on the web - try http://www.direct.gov.uk/en/MoneyTaxAndBenefits/BenefitsTaxCreditsAndOtherSupport/index.htm – the government’s own site which is pretty easy to follow. Or you can visit your local Citizen’s Advice Bureau. To quote from that site, you may be able to claim a benefit if:-
|
||