Taxes can be a complex and confusing part of life. Little about them is taught to you when you are younger, and, as you get older, different types of tax begin to affect you compared to when you first entered employment.
Knowing how to be vigilant about what taxes you owe, when you need to pay them and how you may be able to minimise the effects of some of the more frustrating ones is important to your peace of mind and financial security.
These six tips will help those unsure about navigating a life of taxpaying, as well as suggesting alternative resources for information on the subject.
Types of tax
Knowing what the basic types of tax are in the United Kingdom is a good place to start:
- Income tax – Paid on what you earn
- National insurance contributions – A type of income tax
- Consumption tax – Paid on the products you buy (VAT)
- Duties on alcohol and tobacco
- Corporation tax – Paid on the profit of a company
- Stamp duty – Paid on the buying of houses and shares
- Council tax – Paid on your home
- Inheritance tax – Paid on money left after death
There are various other types of taxes, but these are the main ones that the average citizen is likely to deal with in their lifetime.
What to be aware of
Once you have familiarised yourself with the types of taxes paid in this country, consider what you need to be aware of. Mainly, you should be aware of which taxes are paid directly, such as council tax, which you must pay to your council authority, and which are paid indirectly, such as consumption tax, where VAT is simply a part of the price you pay for an item.
Then, you must be wary of the repercussions of not paying. Taking income tax as an example, if you fail to pay your due then interest will be charged. Penalties on top of that can result in the taking of your possessions, court action, or the closing of your business, if you have one.
The following six tips will, amongst other benefits, stand you in good stead of avoiding any penalties such as these.
- Keep a diary
The most basic tip of all, when it comes to dealing with taxes, is to keep a diary. Knowing when and to whom you owe money is vitally important to not falling into arrears.
Alongside your diary, a budget is another vital tool. As some taxes can be easily forgotten about, budgeting to ensure you always have enough money spare to pay your taxes, as well as your bills and rent or mortgage payments, will bring peace of mind.
- Be aware of bands
Should you get a new job that includes a pay rise, some are caught out by not realising they have entered a new tax band. Understanding personal tax allowance, higher tax bands, and allowances for those with disabilities is essential.
- Communicate with your employer
Having a good rapport with your employer is key to properly understanding your tax. When you begin working after leaving school, that first payslip that includes a tax deduction can be a harrowing moment. Having the confidence and calmness to speak to your employer to understand how and why you have been taxed is good practice and prevents confusion.
- Understand inheritance tax
Some taxes require a little extra planning than others. When it comes to inheritance tax, there are a number of important preparations to be made, which could require the advice of an accountant.
In essence, it is possible to leave certain amounts of money tax-free and, as you look to protect the future of your loved ones as your grow old, that is a useful device. Gifting money, having a proper will, and creating trusts should all be looked into.
- Know your bank won’t advise you
When confused about tax, many people turn to their bank for help. The fact of the matter is most banks do not give out tax advice and will point you in the direction of HMRC or tell you to seek out an accountant.
Go straight to them instead of wasting your time.
- Do online research and hire a professional
From accountants to money-saving websites, the internet is awash with tax advice. Rather than plowing on in confusion, it could be better to seek the words of wisdom from professionals who are available at accounting firms like Tax Advantage (you can search for cpa jacksonville beach fl online to locate them). Remember, money matters should not be delayed. At the worst, it can cost you a fortune.
