“In this world, nothing can be said to be certain, except death and taxes” – Benjamin Franklin, Founding Father of the United States of America.
Morbid? Maybe. True? Certainly.
People are quick to say just how much they HATE paying tax. There are even some who may do their best to dodge paying it all together *glares suspiciously at various global companies in the headlines in recent years*.
BUT no matter how we feel about it, it is here to stay. Sorry – Ben Franklin said it early doors 18th Century and he wasn’t wrong.
I challenge you right now: how much do you actually know about tax as an institution and why we pay it? Is it all bad? How should you view it?
I am coming at you with some facts about tax to help you get in the know about this ancient system including why we pay it in the first place….
Tax is a required payment put in place by the government on a person’s income and any profits they make in their business. Income tax, corporation tax, VAT (value added tax), National Insurance, Capital Gains tax, Inheritance tax are a few examples of this.
It can be added to the cost of goods, services, and transactions. VAT is a strong example of this: Value Added Tax is a tax paid on the sale of goods and services. In the UK you do not need to register to pay the government VAT until your business is turning over £85,000 in a rolling 12 month period. However, if you have purchased something from a supermarket, hardware store, service business, you will have likely seen VAT shown clearly on your receipt / invoice. This will be what that supplier will then pay to HMRC (Her Majesty’s Revenue & Customs).
Tax has existed since well before medieval times (think biblical times!!), usually paid on ownership of land and on a variety of imports and exports like wool and wine.
Income tax was first implemented in Great Britain by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for the Napoleonic Wars.
The modern-day tax system you are familiar with today developed after the second World War and has changed over time with different governments. This means that various rates of tax have been cut to form the system you know (and most probably hate) today.
There are 3 rates of income tax in England and Wales:
o Basic Rate £12,571 to £50,270 20%
o Higher Rate £50,271 to £150,000 45%
o Additional Rate Over £150,000 50%
You receive a personal allowance of up to £12,570 meaning you don’t pay income tax on money earned up to that number (this is dependent on your tax code). And when you start earning £125,140 you no longer receive your personal allowance anymore…
What about Scotland?
o Starter rate £12,571 to £14,667 19%
o Basic rate £14,668 to £25,296 20%
o Intermediate rate £25,297 to £43,662 21%
o Higher rate £43,663 to £150,000 41%
o Top rate over £150,000 46%
Income tax and national insurance are different taxes with differing rates. Income tax pays for government funded programmes, enabling a government to function at all levels. National insurance pays for social and environmental packs, keeping us safe and healthy.
So what are your thoughts on tax now? Likely you still hate it.
However, because of your tax contribution you help the government to pay for a variety of services which can benefit you and your family, including health care, the social support system, the police, transport, and housing to name but a few. It also helps toward the upkeep of roads and parks.
So next time you are out for a drive on a beautifully smooth well-maintained road, or sat in a fabulous scenic park, take a moment, and think to yourself “I contributed to this”.
Unfortunately, you cannot avoid tax; it’s something we all face. And maybe whilst this little lesson has helped you view it in a different light, you may still dread the thought – never quite knowing where to start.
Fear not! This next couple of weeks, we will be coming to you on this blog with some helpful tips and advice as well as EXCLUSIVE ACCESS to one of our popular tools helping business owners get ahead of their taxes. Set an alert, join our email list, keep your eyes peeled…
Can’t wait that long? Email us with the words “save me from tax hell” to see how we can help you today...
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