Taxes have been a significant aspect of national life for ages. Without them, funding the nation’s transportation infrastructure, schools, colleges, health, welfare, and other services would be difficult. In addition to these significant areas of spending, money is also provided to help other essential sectors like industry, sports, heritage, and culture.
The taxation must be considered and approved by Parliament, and it must also ensure that the money is used to benefit the UK as a whole.
The UK Tax System
Tax administration and collection in the UK is the responsibility of HM Revenue and Customs. In 2020–21, the UK’s total tax revenues were about £584.5 billion, a 7.7 per cent decline from the prior tax year.
Income taxes, property taxes, capital gains taxes, Value Added Tax, and UK inherent tax are among the basic UK taxes (VAT). Many of them are progressive taxes, which means that people who earn more pay more for them.
All the countries that make up the United Kingdom use the British fiscal system, including England, Wales, Northern Ireland, Scotland (although there are some special differences because of Scotland’s legal system), and several of the smaller islands off the British coast. Additionally, it includes oil drilling sites within British maritime borders but noticeably leaves out the Isle of Man and the Channel Islands.
Why Do We Pay Taxes
It starts with the law. If you put off paying or refuse to pay taxes, you risk facing high fines and maybe jail time.
However, even if, for the majority of us, going to jail is a pretty solid incentive to pay our taxes on time, it doesn’t seem like a very satisfying motivation. It’s not like we directly participated in the creation and application of laws, some of which date back to before we were even born, and neither do we have that much influence over how money is spent.
Before the coronavirus pandemic, it was predicted that public spending would total £842 billion in 2019–2020, with “social protection” such as bonuses and the state pension accounting for the majority of that amount ($256 billion).
Education came in third with £103 billion, followed by health with £166 billion. Our income tax is used to invest in public projects like roads, rails, housing, and technology, in addition to helping to finance public services.
You might object to how some of the funds are allocated since you don’t drive and wonder why millions should be spent on potholes.
Even though you may not drive, your life still depends on the road system. For example, the groceries in the supermarket didn’t appear on the shelves by magic; it was delivered by truck. It is not possible to live in any country without using services that are paid for by taxes.
Why Do Non-UK Residents Have To Pay Tax
Tax laws for non-residents are intricate and subject to change, hence why you should speak with the team at The Taxman UK. You must know which criteria apply to you if you are a non-UK resident because there are so many laws that can alter your tax situation.
The UK tax legislation offers a favourable tax system for people who live in the country but are not considered UK citizens. Although there have been significant modifications to the requirements recently, it is still a highly appealing option for people who are not UK citizens who are moving to the UK to live.
You could still be allowed to stay a few days in the UK without invoking UK residents under UK non-resident tax regulations. Based on your unique facts, ETC Tax can analyse the statutory resident test and determine how many days are acceptable presence before you are considered a UK resident. If you earn any income from UK sources, you are liable to pay back to the government just like any other UK resident.
Taxes In The Taxes
In the UK, taxes may be paid to at least three separate governmental entities, including the national government (HMRC), divided governments (particularly Scotland), and local governments through council taxes.
The key taxes that HMRC manages are as follows:
- Income tax
- Corporation tax
- Capital gains tax
- Inheritance tax
- Insurance premium tax
- Stamp, land, and petroleum revenue taxes
- Environmental taxes
- Climate change and aggregates levy and landfill tax
- Value-Added Tax (VAT)
- Customs duty;
- Excise duties
Income Taxes in The UK
Your annual income tax payment is determined by:
- What percentage of your revenue is beyond your allowance?
- What proportion of your income is subject to each tax bracket
- Tax-free income is some income.
A gradually increasing income tax rate is applied to income categories with greater income levels. Taxes are levied on the sum of all earned and accumulated investment income, less specified allowances and deductions.
The personal allowance is the primary benefit. The majority of people are eligible to apply for a personal allowance unless they are doing so on a remittance basis or have an income of more than GBP 125,140. An individual’s taxable income is often defined as the net amount after allowances. The progressive rates of income tax change slightly based on whether the revenue is from earnings or assets.
UK Regional Taxes
In the UK, local administrations are in charge of managing council tax. They also impose a small number of fines and charges, such as charges for street parking.
UK Taxes on Goods and Services
Nearly all goods and services in the UK are subject to value-added taxes. If you exceed the limitations, these can also apply to items you bring into the UK from abroad. If you import or order things online outside of the UK and the total doesn’t exceed £135, you must pay VAT at the point of sale under new regulations that took effect in January 2021.
Although some products and services are subject to lower UK business tax rates, the country’s normal commercial tax rate is 20 per cent. However, some things are exempt from VAT, such as long-term medical supplies.
Can you get your VAT money back?
Shopping is tax-free for visitors and tourists while they are in the UK. If they take the products they purchased in the UK with them when they exit the country; they may be eligible to receive a refund of any VAT they paid.
The store or refund business typically assesses a fee for your use of tax-free shopping. Such refunds must be requested by the last day of the 3rd month following the month you made the purchase. These are exclusively accessible to tourists, guests, and British nationals who have lived overseas for at least a year.
When leaving the UK, you must be able to produce your passport, visa, or other appropriate documentation to the customs official and the shop assistant as proof that you fall under one of these categories.
Products not eligible for a VAT refund
Currently, the following items are not eligible for tax-free shopping or VAT refunds:
- All kinds of services
- Merchandise that you used or partially used in the UK
- Automobiles and boats
- Goods worth more than £600 that will be exported for commercial purposes
- Products that require an export licence and those that will be shipped overseas as freight (except antiques)
- Coins and unmounted gemstones
- Internet sales and mail-order products
Not all merchants permit tax-free purchases. Finding a store that offers VAT refunds is the first step in making a claim. You should then ask the shop for a VAT check or refund, which you must sign in the store’s presence. When you leave the UK, you must present this form, your sale receipts, your ticket, your passport, and your boarding pass at a designated customs office.
Once the form has been approved, you have two options for getting your money: you can drop it off at a customs post office or bring it to a VAT refund office to get a cash refund or a credit to your credit card.
Who Must Pay Taxes?
Excluding VAT, most of the numerous taxes to which a resident of the UK is subject are linked in some manner to income taxes. Adding up your current income and benefits, deducting your personal allowance, and paying the appropriate rate on the difference is the primary method for this.
All people are allowed a personal allowance of £12,570 for the 2022–2023 tax year, which makes income below that amount tax-exempt. UK income tax rates vary based on your income in phases. These steps or bands determine additional tax rates, such as capital gains tax rates.
No matter where a person resides, UK tax rates are the same for everyone. What income sources must be reported on your return, however, is determined by your residency status. A person who is a UK tax resident for benefits is subject to tax on their international income with deductions to avoid double taxation from some nations. But on the other hand, non-UK citizens only pay taxes on income earned in the UK.
Joint files are not accepted in the UK; each individual is required to submit their own return.
If you want to know if you are a UK resident for tax purposes, you can do it on the official UK government website. But if you live overseas and need help completing your UK non-resident self-assessment tax return, then speak to the professionals at The Taxman UK.