Types of Tax Most taxes fall into one of two groups Direct Taxes – tax on income or profits. Indirect Taxes – tax on spending. In the past these two groups would cover the majority of taxes, but over the last few years we have had new taxes aimed at protecting the environment – we call these ‘Green Taxes’

Direct Taxes – taxes on income or profits Income Tax – tax on incomes. There is a tax free allowance, which means that the first £7,500 of income has no tax. Then there are three bands of income tax, 20%, 40%, and 50%. National Insurance – another tax on income, paid at 12% on income between £7,500 and £45,000, and 2% above this. Corporation Tax – tax on company profits, paid at 26%.

Indirect Taxes VAT (Value Added Tax) On most goods and services, charged at 20%. No VAT on children’s clothes, food (VAT is charged on restaurant, and takeaway food), books, newspapers, air travel. 5% rate of VAT on Gas and Electricity. Customs and Excise Duties. These duties are on Wine, beer, spirits, petrol, and cigarettes. A packet of 20 cigarettes has around £3.10 excise duty, a litre of petrol 58p excise duty plus 20p VAT!

Green Taxes – designed to protect the environment Air Passenger Duty – paid on air travel, the amount depends upon how far the journey is. Land Fill Duty – a tax on burying rubbish – this tax is one reason why councils encourage re-cycling Climate Change Levy – a tax on big business energy use.

Tax Revenues – how much in total is raised by taxes

What are taxes spent on?