Taxes and National Insurance: the basics
Whether you're working, studying or claiming benefits, you're likely to be paying tax in one way or another. This simple guide explains what tax actually is and when you're likely to have to pay it. It also gives an introduction to National Insurance.
Tax is the way that the Government raises money to spend on public services. This includes things like hospitals, schools and building new roads and houses.
The rates for the different taxes are set by the Chancellor of the Exchequer every year in the Budget statement. Whether they go up, down or stay the same depends on how much is needed for the country's services.
For example, if more public money needs to be spent on hospitals, then taxes may go up to pay for them.
Here's a round-up of taxes you may come across:
Income Tax affects nearly all of us. It's not just taken from your earnings - it's also applied to savings interest, investment income and some benefits.
National Insurance (NI) contributions are deducted from your earnings if you earn over a certain amount. They go towards your state pension and help pay for other state benefits if you're employed.
If you don't keep up with your contributions, you could lose the right to other benefits, like Jobseeker's Allowance or statutory payments like Statutory Sick Pay. You also may not receive a full State Pension when you retire.
National Insurance number
The government tracks the amount of contributions you make by giving you a unique National Insurance number just before you reach the age of 16. You'll need this when you start a job or start claiming benefits.
National Insurance overpayments
You may be able to claim back National Insurance if you think you've had deductions taken from your wages before your 16th birthday or if you think you haven't earned enough.
If you're a student and you only work during the holidays, you won't be able to claim back National Insurance in the same way as Income Tax.
Money for public services in Northern Ireland comes from a combination of the UK’s central tax system and our local revenues collected through the rates system.
Rates is split into two parts:
- the regional rate which funds such services as health, education, roads and water
- the district rate - set by local councils, which funds such services as waste collection, leisure services, building control and environmental health
All revenue raised through rates remains in Northern Ireland.
Land & Property Services, an executive agency within the Department of Finance and Personnel, is responsible for the billing and collection of rates in Northern Ireland.
Value Added Tax (VAT)
Most of us are also affected by Value Added Tax (VAT). This is charged on many everyday goods you buy, like electrical goods, some types of clothes and food and drink consumed in restaurants.
It's usually included in the amount that you see on the price label, but you'll sometimes get a bill or statement showing the VAT separately - on a mobile phone bill for example. This doesn't mean you've paid any extra, it simply illustrates how much of the total cost was made up of VAT.
Tax on vehicles
If you own a car or motorbike, you'll have to pay vehicle tax every year. How much you pay depends on the sort of car you have and how environmentally friendly your vehicle is.
The fuel that you use is also subject to tax. It doesn't matter if you use diesel or unleaded petrol, a certain percentage of each litre of fuel that you use is made up of fuel duty. Changes to the level of fuel duty are announced in the annual Budget statement and will be added to the cost of fuel at the petrol pumps.
Going on holiday
If you're flying out on holiday, you might not know that the cost of your trip depends on levels of tax. The government of the country you're travelling to will charge an Air Passenger Duty. This charge will be added to the cost of your ticket.
The amount of tax you'll pay depends on the country you're travelling to.