Tax? - Getting What You Pay For

You’ve probably heard your mum and dad moan and groan when they have to pay taxes, but actually there are very good reasons why we pay them, and why we give up some of our own wealth to the government so they can protect and provide for us.

Taxation dates back to Egyptian times, but it wasn’t always money that people had to give. For instance, in medieval times, people had to give one tenth of their produce to the church. This “tithe” was a form of tax paying for the upkeep of the church. In return, the church looked after the poor and the sick and provided education.

Nowadays, the government collects over £400 billion in taxes each year with the average person contributing about £7000 of that.

There are many different kinds of taxes we pay, but the biggest one is probably income tax. This is paid according to how much we earn.

We also pay tax on things we buy - value added tax, (also know as VAT) for instance. On some items we pay more tax than others. Cigarettes and alcohol carry heavy taxes because the government either wants to discourage people from spending money on them or they are considered a ‘luxury’ through which a higher rate of money per item can be raised. Education and basic foods, however, have no tax on them because they are essentials.

So, what does the government do with all the tax we give them? Well, they spend it on services that we need. For example, education. The money for teachers’ salaries, school buildings and even the pencils and stationery used in the classroom comes mostly from our taxes!

Tax also pays for things like health services, defence, social services, roads, and law & order_ So you can see, if we didn’t pay taxes, the country wouldn’t be in very good shape!

One of the biggest problems the Government has with taxation is the cost of collecting it. To keep this as low as possible, much of the work of tax collection is done by the tax payer. Income tax is a serious business and there are whole departments checking that we all pay our fair share. The penalties for avoiding tax altogether can be quite serious: heavy fines, or even going to jail in the most extreme cases.

So it’s important to budget and even to save for taxes - perhaps not just yet, but certainly when you leave school!

Source - The Chartered Institute of Taxation

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