TAX What Is Tax? Types of Tax Impacts of Tax Changes

What Is Tax? It’s the Government’s way of raising money to pay for all the country’s essential services. When you pay tax, it’s your contribution to keeping the country running. It’s the Government’s way of raising money to pay for all the country’s essential services. When you pay tax, it’s your contribution to keeping the country running. Q. What sort of things do you think the money is used for? Q. What sort of things do you think the money is used for? A. Schools, hospitals, emergency services, the armed forces, public transport, and so on A. Schools, hospitals, emergency services, the armed forces, public transport, and so on Q. Do you have any idea how much money the Government spends every year? Q. Do you have any idea how much money the Government spends every year? A. All those free services that we use don’t come cheap – every year the Government spends about £400 billion pounds on them. A. All those free services that we use don’t come cheap – every year the Government spends about £400 billion pounds on them.

Types of Tax Income Tax – Tax paid on your earning Income Tax – Tax paid on your earning Value Added Tax - a tax charged on most business-to-business and business-to- consumer transactions in the UK. Value Added Tax - a tax charged on most business-to-business and business-to- consumer transactions in the UK. Corporation Tax - Corporation Tax is a tax on your company's taxable income or profits. Corporation Tax - Corporation Tax is a tax on your company's taxable income or profits.

Income Tax A. The more you earn, the more you pay. A. The more you earn, the more you pay. You don’t pay any tax on the first £5,035 you earn because that’s your Personal Allowance You don’t pay any tax on the first £5,035 you earn because that’s your Personal Allowance 10% on anything you earn between £5,035 and £7,185 10% on anything you earn between £5,035 and £7,185 After that, you pay 22% on your earnings up to £33,300 a year. After that, you pay 22% on your earnings up to £33,300 a year. People who earn more than £33,300 pay 40% on anything they earn over that – they are called ‘higher rate’ taxpayers People who earn more than £33,300 pay 40% on anything they earn over that – they are called ‘higher rate’ taxpayers

Value Added Tax (VAT) You must register for VAT if your turnover for the previous 12 months is over a specific limit - currently £67,000 - or if you think your turnover may soon go over this limit. You may register voluntarily at any time. You must register for VAT if your turnover for the previous 12 months is over a specific limit - currently £67,000 - or if you think your turnover may soon go over this limit. You may register voluntarily at any time.

Rates of VAT Different VAT rates apply to different goods and services. Currently there are three rates: Different VAT rates apply to different goods and services. Currently there are three rates: standard rate per cent standard rate per cent reduced rate - 5 per cent reduced rate - 5 per cent zero rate - 0 per cent zero rate - 0 per cent Examples of reduced rate items include: Examples of reduced rate items include: domestic fuel and power domestic fuel and power installation of energy-saving materials installation of energy-saving materials residential conversions residential conversions women's sanitary products women's sanitary products children's car seats children's car seats Examples of zero-rated items include: Examples of zero-rated items include: food - but not meals in restaurants or hot takeaways food - but not meals in restaurants or hot takeaways books and newspapers books and newspapers children's clothing and shoes children's clothing and shoes public transport public transport

Corporation Tax Corporation Tax on profits - figures Rates, limits, fractions for financial years starting 1 April Main rate of corporation tax 30%28% Small companies’ rate (SCR)* 20%21% SCR can be claimed by qualifying companies with profits at an annual rate not exceeding £300,000

In Pairs/Groups: Discuss the impact of changes in these taxes. Discuss the impact of changes in these taxes. What effect would an increase/decrease have on: What effect would an increase/decrease have on: Demand Demand Competition Competition International Trading International Trading Government Government