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It is essential that every person and business has a firm understanding of taxes in order to make sure that they are abiding by the law and managing their finances correctly.

Despite this, taxes can be an area of confusion for many so read on to discover all that you need to know.

So, what exactly are taxes? Tax is an involuntary fee levied on an individual or business in order to help pay for public services, such as the NHS in the UK. Here are a few of the most common types of taxes that people and business pay each year:

Income Tax

The most common form of tax is income tax with the basic rate being 20%. The amount that you pay will depend on how much your income is above the Personal Allowance (currently £11,500) and how much of your income falls within each tax band.

National Insurance Contributions

National Insurance is paid in order to qualify for State Pension and various benefits but not everyone will pay the same amount. NI contributions are paid by anyone over 16 and earning £157 or more a week or anyone self-employed with annual profits of £6,025 or more.

Value Added Tax (VAT)

VAT is a consumption tax and the third-largest source of Government revenue following the above types. VAT is paid on most goods and services with the current rate of 20% (usually included in the listed price). A reduced rate is on some good and services, such as sanitary products, children’s car seats and energy-saving measures.

Corporation Tax

Corporation tax is paid on company profit at 18% in 2020 (up from 19% in previous years). You will have to pay this type of tax if you are a limited company, if you are a foreign company with a UK brand or if you are a club or any other type of unincorporated association.

Stamp Duty

If you purchase a residential property in the UK over the value of £125,000 a non-residential land over £150,000 you will have to pay stamp duty. The amount paid will depend on a few factors but it might be less if it is your first home.

Inheritance Tax

Inheritance tax is a type of tax paid by a person that inherits money or property from someone who has passed away. This can be a complex area which is why it is helpful to speak to a specialist if you inherit any money or property.

Capital Gains Tax

Capital gains tax is a tax on profit when you sell an asset that has increased in value – you pay on the gain that is made, not the amount of money that is received.

These are the main types of taxes that people need to familiarise themselves with and it is important to have a clear understanding so that you can abide by the law.

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