Why Is It Important To Pay Tax In The UK?

Benjamin Franklin famously said “Nothing is Certain Except Death and Taxes”. So if you’re here, you’re probably trying to find out some information on the latter. Unfortunately, paying taxes is very important. In the UK, you pay tax on things like income, products, services and your car.

So let’s jump into it to give you the 411 on all things tax...

What is tax?

In almost every country around the world tax pays for public services. Without it, the government wouldn’t be able to fund any of the things that tax-payers use. These things include education, healthcare, transport, social services, and more.

However, there are many different types of tax that individuals and corporations pay in the UK. Here are some examples of taxes that are paid on a national level:

Income tax

First off, we have income tax. In the UK, everyone who earns more than £12,570 a year pays income tax.

Depending on how much you earn, a growing percentage of your yearly salary goes to the government. For employees of companies, this tax gets paid automatically, however self-employed individuals need to pay this themselves.

Capital gains

Capital gains tax is money that gets deducted from profit you make when you sell an asset or stock that has gone up in value.

For example, say you buy a stock in Apple for £100,000 in 2020 and sell it for £150,000 in 2022, the £50,000 difference will be subject to taxation. The idea here is that because the government contributes to keeping the economy thriving, they should get a percentage of any value increases as a result of this.

However, you only pay capital gains tax once the asset is sold. You don’t have to worry about paying it year-on-year.

National insurance

Similarly to income tax, you pay national insurance if you earn over the personal allowance threshold.

National Insurance helps to pay for state benefits at times when individuals need financial help. for example, when they are unemployed, ill, in retirement or on bereavement.

VAT

VAT, or Value Added Tax is a tax that is automatically added to most goods and services. When you buy food in a restaurant, or new jeans in a shop, a percentage of this purchase price will include the VAT that is payable to the government.

What do taxes pay for?

Taxes might be boring, but they are pretty important. The Government collects taxes to fund various public services. Some examples of what taxes pay for include:

• Education: the UK Government uses taxes to pay for all kids in the UK to go to school. This pays for the buildings, teachers and all expenses. This contribution ensures that education is accessible for everyone.
• Healthcare: The NHS (National Health Service) exists in the UK to give free or subsidised healthcare for everyone in the UK. Taxes allow the government to fund this service and pay for doctors, medicine, equipment and buildings.
• Infrastructure: Every wonder who pays for potholes to be filled in? Or who pays bus drivers? Taxes pay to fix, manage and maintain roads, transport links, trains and buses.
• Social Welfare: taxes also pay for programs to help the vulnerable people in our society. This includes benefits for the unemployed, disabled and elderly.

Whilst this is just a small list, these aren’t the only things taxes pay for. They also pay for defence and security, culture, government administration, public order, and much more!

What happens if you don’t pay tax?

HM Revenue and Customs (HMRC) is a department of the UK government that is in charge of all the taxes we pay.

If you don’t pay taxes to HMRC, you could be convicted of tax evasion, which has some serious consequences!

HMRC can take action if you haven’t properly paid your taxes. Almost everywhere in the world, tax evasion is a crime.

To prevent prosecution, HMRC can take money straight out of your bank account if your debt is higher than £1,000. If this doesn’t work they could take you to court, repossess your property or take money from your business.

However, these are the last resorts. If you do find yourself short on taxes, simply contact HMRC and explain your situation. If you can’t pay your taxes at all, they can help you come up with a financing plan to pay them off.

How do I know how much tax I owe?

Whilst some taxes like VAT are automatically added to goods, others are the responsibility of the individual.

Luckily, the UK government has a comprehensive guide about how to work out how much tax you owe.

If in doubt, check the gov.uk website to find out more. If you create an account, it’s easy to keep track of how much you owe and how to pay it.

Conclusion

To sum up, taxes aren’t fun but we all need to pay them! At least hopefully now you can understand why they are so important.

At the end of the day, taxes are essential for our country to run. Without them, we’d lost public services. So next time you sigh at your tax bill remember - our country wouldn’t function without them!

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