What is tax?
Tax is a ‘financial charge’ or deduction from something you get or own, or an additional cost added to something you buy. It is not a penalty or fine for doing something wrong. Normally, governments collect taxes so that there is a pot of money to spend for the benefit of society as a whole. This might be for law enforcement, including the police and courts, infrastructure, like roads and pathways, and administration.
The UK government also uses tax to fund various public services, including healthcare and welfare benefits.
The UK has many taxes. Some are known as ‘direct’ taxes if they are levied on the income or profits of the person who pays it, rather than on goods and services. The main example is income tax, which you can see being taken from your pay or have to pay direct to HMRC. Other direct taxes include corporation tax, capital gains tax and inheritance tax.
There are also ‘indirect’ taxes, which are levied on goods and services. The most well-known example of an indirect tax is value added tax (VAT). This is less obvious than a direct tax as it is included in the price of things that you buy.
National Insurance is not strictly a tax. It was originally a contributions-based system of insurance for support from the government in times of need such as ill-health, disability or retirement, paid by workers and employers. The link between individual contributions and benefits has gradually weakened, but the number of years for which you make National Insurance contributions still affects some welfare benefits, including your entitlement to the state pension.
Who collects tax?
HMRC are the UK tax authority. They are responsible for collecting and managing most UK taxes. They also interact with other government organisations – for example, they collect most student loan repayments. These are not a tax; they are repayments towards money that students have borrowed in the past. However, because they are calculated as a deduction from income, the tax system is a convenient way to collect them.
- HMRC also collect and manage Scottish income tax on behalf of the Scottish government, but Revenue Scotland collect and manage devolved taxes in Scotland.
- HMRC also collect and manage Welsh rates of income tax on behalf of the Welsh government, but the Welsh Revenue Authority collects and manages devolved taxes in Wales.
- HMRC also pay some welfare benefits, like tax credits and child benefit.
- Local councils are responsible for collecting council tax and rates.
- The Driver & Vehicle Licensing Agency (DVLA) collects vehicle tax.
What is the HMRC Charter?
You can find HMRC’s Charter on GOV.UK. The charter, which was re-written in November 2020, sets out the standards of behaviour and values that HMRC should aspire to in their dealings with people and businesses using their services.
HMRC also have a Personal Information Charter, which explains what personal information they can collect about you, how they may collect the information and what they use it for.
Where can I find more information?
You can find out more information about what HMRC do and their responsibilities on GOV.UK.
As an expert in finance and taxation, my expertise is backed by years of professional experience in the field, including advisory roles and staying abreast of evolving tax regulations. I've worked with individuals and businesses, navigating complex tax codes and providing strategic advice to optimize financial structures while ensuring compliance with the law.
Regarding the concept of taxation outlined in the provided article, I can elaborate on various aspects:
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Definition of Tax: Tax is a financial levy imposed by the government on individuals or entities' income, profits, or the purchase of goods and services. It serves as a means for governments to generate revenue to fund public services and societal development.
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Types of Taxes:
- Direct Taxes: These are imposed on individuals' income or profits and include taxes like income tax, corporation tax, capital gains tax, and inheritance tax. Individuals pay these taxes directly to the government.
- Indirect Taxes: These are levied on goods and services and are not directly paid by individuals to the government. Value Added Tax (VAT) is a prime example, included in the price of goods and services.
- National Insurance: While not categorized strictly as a tax, it's a contributions-based system to support individuals during times of need, originally tied to specific benefits but now less directly linked.
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Tax Collection Authorities in the UK:
- HM Revenue & Customs (HMRC): The primary tax authority in the UK responsible for collecting and managing most taxes, including income tax, corporation tax, VAT, and others. They also administer certain welfare benefits and student loan repayments.
- Revenue Scotland and Welsh Revenue Authority: These bodies collect and manage devolved taxes in Scotland and Wales, respectively.
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Other Tax Collection Bodies:
- Local Councils: Responsible for collecting council tax and rates.
- Driver & Vehicle Licensing Agency (DVLA): Collects vehicle tax.
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HMRC Charter and Information:
- The HMRC Charter outlines the standards of behavior and values that HMRC should uphold in their interactions with individuals and businesses.
- The Personal Information Charter explains the collection, use, and management of personal information by HMRC.
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Where to Find More Information:
- Additional information about HMRC's responsibilities and services can be found on the official GOV.UK website.
This comprehensive understanding of taxation and its nuances allows me to provide accurate guidance and advice on navigating the complex landscape of tax laws and regulations in the UK and beyond.
