Taxes are a boring… and complicated… and one day they will apply to you. As the saying goes, “There are only two certainties in life,” and one of them is tax! That’s why it’s important that you understand what this “tax stuff” is about.
Some of you may not really know what tax actually is or what it means – but even if you’ve had a job, you may have never have looked at the details of your payslip, and you might be too embarrassed to ask anyone what tax actually is. So here is a little more information on the subject.
Tax is a compulsory financial charge or deduction from something you receive or something that you own – and that money goes to the state. The Government usually collects taxes and set them aside in a pot so they can then spend them in ways that will benefit society. For example, some of this pot may be spent on law enforcement or road maintenance.
There are many taxes and some are more obvious than others. For example, direct tax is an obvious form of tax because you can see it being taken out of your pay (your payslip will show your Gross Pay, which is what you have earned before tax, some deductions like National Insurance, and your Net Pay, which is what you will receive after tax) - These taxes are paid directly to HM Revenue and Customs (HMRC). Other forms of direct tax are, for example, Corporation Tax, Capital Gains Tax and Inheritance Tax.
The not so obvious taxes that you pay are called indirect tax. The most common indirect tax is VAT, which stands for Value Added Tax. It is normally already included in the price of things that you buy. The clothing brand Hollister shows you on their tills when they scan the bar codes how much the clothing is and then the amount of VAT you have paid.
Doesn’t sound that confusing... Indirect and direct tax – simple, right? It’s not. You might think that you have to pay tax on everything, but you actually don’t. So what is taxable and what isn’t? Below is a list of the most common types of taxable income that you’re likely to come across (this is not an all inclusive list – there are many more types).
The main sources of earned income are usually all taxed:
Other sources of earned income that are also taxed:
These are when the UK Government provides financial support for people with certain needs and this is done through the benefit system. Yes, some benefits are taxable, but not all of them. The most important thing to remember is that tax credits and universal credit is a form of non-taxable income.
You can check your income tax for the current year on the Government website, and you’ll be able to estimate how much tax you will pay over the whole year (this may be more accurate, and it’s certainly easier, than you trying to work it out yourself).
Many services that were available through Government Gateway are being moved (upgraded, if you will) to the new GOV.UK Verify system - including checking your driving licence information and managing your taxes through your Personal Tax account.
To use Verify you’ll need to have your identity verified online by a certified provider, such as CitizenSafe, and then all you’ll need to do is sign in. The process for initially verifying your identity is the same no matter which provider you use - it takes about 10 minutes, during which you’ll register and then answer a few questions about your financial history. It sounds a bit daunting but it’s secure, safe and a lot faster than the current process by post! After that, signing will take seconds.
There are a few companies that can use to verify your identity, some that you might have never heard of, but that doesn’t make them any less trustworthy to verify who you are. You probably would choose one of the companies that you’re familiar with, but the one I’d choose is CitizenSafe.
I guess some of you are wondering why I’d choose a company that you’ve never heard of. The reason is that they are part of a professional and global identification company and are 100% committed to the online verification service (I mean, they’ve been doing identity verification, and only identity verification, since 2003!).
CitizenSafe make the verification process simple and easy to use, will only ever ask for things that are needed to identify you, and they use the most up-to-date technology and security to keep your information and identity documents safe and secure.
So when you’re next using the government services keep in mind CitizenSafe.