Types of Taxes in the UK
One of the most important obligations that a business owner or just individual making money in the UK has is to pay the taxes for the income they make. It’s essential that you familiarize yourself with the details of this process and to know what and how you’re paying.
There are many different kinds of taxes to pay, and you should try to familiarize yourself with them and what are the difference and the similarities between each of them. This is something you should, even if you have an accountant.
Income tax is the most common tax in the UK. That’s the tax that you pay on the income that you make. For most people, that’s done via Pay as You Earn Scheme. That’s how those who get their income through a monthly or weekly paycheck pay their taxes.
It’s also possible to pay income tax via a yearly tax return which is for those who are self-employed and that have some sort of income that’s coming from a source that isn’t related to investments. The tax is progressive meaning that it gets higher as you earn more.
National insurance contributions
National insurance contributions aren’t technically taxes but contributions towards an insurance policy. That’s paid together with your PAYE meaning that it’s paid on the salary of your employees or your own and it depends on its amount for rates. As is the case with any other insurance policies, it goes towards larger payments that made to you when you need them.
These will cover you when you’re between jobs, when you’re taking sick leave or when you have a disability that’s related to your work or has happened during your work hours.
VAT stands for value-added tax, and it’s essentially a sales tax in the UK. It’s paid on the value earned by the company selling you an item or a service. There are many benefits of this tax for both the government and the taxpayer. For a government, it makes it easier to collect the tax since it’s collected at a transaction.
The companies benefit from tax breaks for the items that are needed for the business if they are paying VAT. There’s also a benefit from having a fixed tax rate since that’s the case with VAT.
Corporation tax is the tax that’s paid on the income made by a corporation. The corporation is a separate entity from the owners and investors in a company, and the income it makes is therefore separate. A good thing about it is that it’s a fixed and lower rate than the income tax.
There are, however, downsides as well that you need to have in mind when setting up your company. When you set the company up as a corporation, you can’t use your personal income to help the company since it’s a separate entity.
Stamp duty land tax
Stamp duty land tax is one of those taxes that’s often overlooked, but that’s one of those expenses that can really change your plans. It’s the tax that’s paid on transferring the ownership of land. It’s therefore also paid when you purchase property since it’s paid on the land the property is based on.
Those who want to invest in property and to flip them or earn from renting it should figure out what these additional expenses will be since it can add up and even jeopardize your long term plans as an investor.
Excise duties again aren’t taxes but payments made to the government which pretty much makes them taxes, so we put them on this list as well. These are paid when you purchase the products or service that the government has decided that it should be taxed additionally. It’s mostly about protecting your health or the environment in general.
They are usually paid on cigarettes and on gas and other carbon-based fuels since they are the most damaging to the environment and the government is trying to cut down on their usage overall. They are paid with the purchase.
The UK tax code is rather complicated, and that’s something that you need to prepare for as a business owner or just as a person with a lot of expenses and a lot of complicated income streams. It’s essential that you know about different types of taxes even if you have an accountant.
The most important taxes are paid on the sales that you make and on the income that you make, and it depends on what you’re buying and how you make your income. There are also some hidden and less well-known taxes that tend to add up to quite a lot.