151 days, this is the time that UK citizens worked in 2021 to pay taxes, according to the UK residents Institute of Planning and Taxation (IBPT). This is because the UK's tax is high.
A video game, for example, topped last year's list when it comes to Tax Burden, reaching an incidence rate of 76.74%. But it's not just individuals who suffer because the UK's tax is high.
UK residents companies, considering companies from 108 countries, ranked fourth in relation to those that pay the highest tax rate on income, reaching 34%, he showed data from the OECD Corporate Tax Statistics Database.
But do you know what the main taxes are and what makes them so expensive?
In this article we will cover:
- What are taxes?;
- Tax data in the UK;
- What are the main taxes paid?;
- Why are taxes high?;
- Who else pays taxes in the UK?
Come on and have a good read.
What are taxes?
Tax is a mandatory financial tax or charge paid to the government. It is paid by individuals and companies at the municipal, state and federal levels.
As it is mandatory, non-payment can result in fines and even milder punishments such as imprisonment. Payment of taxes is provided for in the article 16 of the CTN (National Tax Code).
Art. 16. Tax is a tax whose obligation has as a triggering event a situation independent of any specific state activity relating to the taxpayer.
What are taxes for?
You taxes they serve to fund and promote projects in the areas of health, education, culture, transport, among other sectors of the country. In other words, they serve as an investment by citizens and businesses in government and society.
In 2021, there was a tax collection federal agencies in the region of R$ 1.479 trillion. According to IBPT, however, the UK is the country that invests the worst taxes collected, with the lowest Irbes (Index of Return of Well-Being to Society).
Tax data in the UK
Tax collection in the UK corresponds to 31.64% of GDP, indicated a National Treasury survey. This places the country as one of the emerging countries that charges the most taxes in the world. This is because the UK's tax is high.
No wonder the study by the UK residents Institute of Planning and Taxation (IBPT) revealed that UK citizens need to work, to pay taxes, for more than 5 months every year. 151 working days are allocated to public coffers.
In terms of tax quality, the UK is also poorly placed. In CNI study, with 18 countries similar to the UK residents economy, the UK led the ranking of worst tax quality.
Other CNI survey, from 2016, showed that 87% of UK citizens say that the level of taxes in the country is very high.
What are the main taxes paid?
When knowing why the UK's tax is high, it is essential to know some of the main taxes that are paid by individuals and companies. Let's start by quoting some of the mandatory charges for individuals.
- IOF (Financial Transactions Tax);
- IPVA (Tax on the Ownership of Motor Vehicles);
- ITBI (Tax on the Transmission of Inter vivos Goods);
- IPTU (Tax on Urban Land and Land Property);
- IRPF (Individual Income Tax);
When we talk about companies, the main taxes that stand out are:
- IRPJ (Corporate Income Tax;
- CSLL (Social Contribution on Net Income);
- ICMS (Tax on Circulation of Goods and Services).
How are taxes divided?
the UK currently has 92 taxes in force, from taxes at different rates, according to the Tax Portal. Taxes in the country are divided between municipal, state and federal.
The collection of municipal taxes is intended to fund investments and projects in the city, aimed at the general public. It corresponds to about 5.5% of all collections in the UK.
Check out two of the main paid to the municipality:
- IPTU (Tax on Urban Territorial Property): Mandatory charge paid by individuals or legal entities, who own property. The IPTU percentage is 1% on the sale value of residential properties and the remaining 1.5%;
- ISS (Services Tax of any nature): O ISS is the tax paid by companies or self-employed service providers, falling under the law 116/2003. The rate can vary from 2 to 5%.
State taxes account for nearly 28 percent of what the country collects. They correspond to the 26 states plus the Federal District. The proceeds are destined to finance projects in the areas of health, education, transport and so on.
Among the two that stand out the most:
- ICMS (Tax on Circulation of Goods and Services): This is a tax that refers to the circulation of goods. Rates can vary from 7 to 35%, considering the service and merchandise in question;
- ITCMD (Tax on Mortis and Donation of Goods or Rights): The rate of this tax takes into account the market value of the assets and is related to the transfer of inheritance and donation of assets. The rate variation is 4 to 8% depending on the state.
In the case of federal taxes, it is a collection corresponding to the Federal Government. Investments through these taxes, in this case, are nationwide.
Two of the several federal taxes that stand out are:
- PIS (Contribution to the Social Integration Program): They are contributions from the legal sphere whose main objective is to fund sickness benefits and unemployment insurance. Companies that opted for the taxable income tax regime, non-cumulative PIS, has a rate of 1.65% on monthly sales;
- COFINS (Contribution to Social Security Financing): The collection of this tax is used to fund social security, social assistance and health programs. The collection base is based on the company's gross income and under the non-cumulative regime the rate reaches 7.6%.
Why are taxes high?
The big reason why the tax is high in the UK is that with each passing day public spending is higher in the country. The consequence of this is a big hole in the public accounts and to make up for it, the government increases taxes to raise the collection.
Furthermore, as the money from the collection is not invested correctly, the quality of basic services in the areas of health, education, transport and others is extremely low.
Thus, the government needs to spend more and more to try to improve the quality of these services and the transfers for this funding come from taxes collected.
Another reason as to why the UK's tax is high was that after the Real Plan, currency issuance had a drop and the consequence was an increase in the tax burden.
Who else pays taxes in the UK?
Now that we know why the UK's tax is high, let's find out who pays more taxes in the country. According to data from the Federal Revenue, a large part of tax collection comes from goods and services, around 44.8%.
Payroll, with 27.34%, and income with 21.62% close the top 3 in tax collection in the country. In the case of goods and services, indirect taxation stands out, which means that it does not take into account income to tax products in this regard.
That is, the same value for a given product or service will be charged to the rich and the poor. Considering this scenario, it is possible to affirm that the base of the social pyramid, the salaried middle class and the poor, in general, are the ones who end up paying more taxes.
This statement is so true that a survey performed by UHY International revealed that the rich in the UK, compared to the G7 countries, pay 32% less taxes.
Remembering that the G7 has countries like Germany, Canada, USA, France, Italy, Japan and the United Kingdom.
Is there a solution to reduce the UK residents tax burden?
Throughout this article we present some factors that show why the UK's tax is high. But is there a solution to this problem?
The scenario is not an easy one, but the answer is yes, although this is only possible in the long term! The solution for a reduction in taxes in the country involves the need for a gradual reduction and fall in public spending.
Many experts, such as the French economist Thomas Piketty, author of the best-selling “Capital in the 21st century”, also argues that this change depends on an increase in taxes on inheritances and assets.
However, it is also essential that the money collected from taxes is invested correctly. Another essential point is that it be a tax reform in the country, which reduces tax privileges.
Did you like our article? So, follow HR Consultant UKy on social media (Facebook, Instagram, Twitter and LinkedIn) and stay tuned for our people, financial and HR management content.
HR Consultant UK can help if you have any questions about Why is the UK's tax high? Understand the main reasons!
. Our HR consultant in London can assist you if you live in London. Suppose you live further afield thats not an issue! Visit our HR Consultants Near Me page to find the best consultancy nearest to you.
See you next time!