The Introduction to the UK Tax system
The UK government raises about 400 billion pounds in taxation each year. This amount is broadly split in the following manner. The largest single tax is income tax earner for the government. Income tax makes up to 32% of total revenue. This tax is charged on salaries from employment, on rental income from property which is let out, on interest from banks and building societies, on dividends from companies, and on the profits the self-employed. The second largest source of earing for the government is National Insurance Contributions, or so-called NIC. Thanks to NIC, the government raises up to 22% of the total income. NIC is usually paid by employers and employees on their earnings from employment. However, there should be added that it is also earned on self-employed persons, i.e. on their profits made on their trades. The third biggest source of governmental income is VAT taxes, which makes up to the 21% of the total government revenue. VAT is the tax which charged by businesses to their customers through the prices of their goods and services. It is also known as value-added tax. Three aforementioned taxes are the most important taxes as far as raising government revenue is concerned. Together they make more than 70% of the total British government income. However, there are still some other sources of incomes, for example, duties. Duties are taxes on alcohol, tobacco or petrol. About 9% is also generated by the corporation tax (CT), paid by UK corporations on their taxable profits. The last sources of government revenue are so-called Green Taxes and capital taxes (CGT/IHT), capital taxes or capital gain taxes, inheritance tax, stamp duty, and Stamp duty Land Stamps. Those types of taxes are made when someone sells assets and make profits on it. The name of “Green taxes” stands for aggregates levy, and the passenger duty. Because the biggest source of government revenue refers to the Income tax, let us look a little bit closer at this specific type of taxes. Income tax is paid on salaries, some state benefits, profits that you make as self-employed, pensions, annuities, some benefits, benefits that you get from your job, and so forth. Each type of income has its own special rules, for example, trading income concerns self-employed trades which include taxi-drivers, solicitors, and so forth. The next type of income is property income which comes from rentals on sells of the properties or buildings. There should be underlined that taxes on non-UK properties are regulated separately. Another type of income could be investments which can divide into two main groups: dividends from companies, or interest income arose in UK banks and societies. Taxes are also on Foreign Income may include some non-UK lands and buildings, non-UK interest or dividends. By and large, income arises from the source outside the UK is also taxable in the UK.