What is tax? –
Tax is money that people and businesses have to pay to the government.
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People pay money to the government in order to get services like police stations, fire and rescue services, and schools.
Tax is mandatory so people living in a country have to pay it – otherwise they could get into a lot of trouble.
There are lots of different types of tax in the UK such as:
- Income tax – paying taxes when you earn money 💼
- Inheritance tax – paying taxes when you inherit money/valuable things from someone who has died 🥀
- Stamp duty – paying taxes when you buy a home 🏠
- Capital gains tax – paying taxes when you sell something that has increased in value e.g. a house, shares in a company. 📈
- Council tax – paying taxes to your local government/council for things like bin collections and schools. 🏫🗑️
- Sales Tax/Value added tax (VAT) – paying tax when you buy certain things – VAT is usually included when you buy things such as food at the shop, and is paid to the government by the shop. 🛍️
How do people pay their taxes? 🤓
How you pay tax depends on the type of tax it is, and how you earn your money.
There are two main ways to pay your tax:
- Directly to the government
- Through your employer – using your payslips!
Directly to the government 🏛️
With some types of tax, the government will send you a bill and you have to pay them directly. 💳
On top of this, every year people who are self-employed have to pay their tax directly to the government. 👷♀️
If you work for yourself, or own your own business, you’re considered “self-employed”.
- Get paid by their customers 💸
- Don’t get payslips
- Have to be SUPER organised and pay their income tax and national insurance tax themselves 🗃️
- Have to complete a form/questionnaire called a “tax return” every year, to pay their taxes 📃
- Need to be very careful with their money, and set money aside to pay their tax bills
- Can hire an accountant to help handle their taxes if they want to make life easier 🦥 What is an accountant? 👩💼
Through your employer 💼
Are you a lazy person? 🦥
In the UK, lots of employers pay tax on your behalf! 💸
This means that your employer:
- does all the maths for you
- calculates your tax for you
- sends your tax payments to the government for you
Once your employer has done this, they’ll send you a “payslip”.
Payslips are documents that tell you how much you’re getting paid.
If you have a job with an employer, every time they pay you, you’ll be given a payslip.
Payslips are usually sent on a piece of paper or a digital document. 📃
Your payslip can tell you how much money you’re:
- Getting paid from your employer 💰
- Paying to the government in tax (What is tax? 💸) 🏛️
- Putting towards your pension (money to look after you when you’re older) 🧓
- Paying off your student loan (if you’ve borrowed money for education)🎓
- Being given as sick pay (if you’ve been sick) 🤒
- Being given as maternity/paternity/adoption pay (if you’ve become a parent) 🍼
- Paying towards court payments/child maintenance (if you’ve received court fines or you have to pay towards your children) 👩⚖️
What happens if you don’t pay tax? 🤷♀️
People who don’t pay tax can get into a lot of trouble, even resulting in the government taking away their belongings in order to pay the tax money that they owe.
Generally governments would be expected to try to help you pay your taxes, but if you refuse to pay them, then they might have the power to do things like:
- Making you go to court
- Giving you fines for not paying
- Taking money from your bank account
- Taking your possessions to pay off the money you owe
If you are struggling to pay taxes it’s really important to get help from a qualified professional.
So that’s it!
Hopefully you’re feeling more confident about understanding tax.
If you know any friends or family members who might benefit from learning about tax, share this post with them!
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