The Life in the UK handbook expects candidates to know how the country is paid for. You do not need to memorise tax rates, but you should be able to recognise the main taxes and what they fund.
Income tax
Most people pay income tax on their earnings above a tax-free "personal allowance". For employees, income tax is collected automatically through Pay As You Earn (PAYE). The self-employed pay tax through Self Assessment, normally by 31 January each year. Income tax funds public services such as the NHS, education and defence.
National Insurance
National Insurance contributions (NICs) pay towards specific benefits, including the State Pension and certain unemployment and sickness benefits. Anyone aged 16 or over who is working must have a National Insurance number, which is used by HM Revenue & Customs (HMRC) to track contributions throughout your working life.
Further reading: a related editorial guide on this topic opens in a new window for additional context.
Council tax
Council tax is paid to your local council to fund local services such as schools, libraries, refuse collection and street lighting. Each property is placed in a band (A to H in England) based on its 1991 value. Single occupants get a 25% discount, and full-time students are exempt.
VAT
Value Added Tax is a sales tax added to most goods and services. The standard rate is 20%. Some items — including most food, children's clothing and books — are zero-rated. The handbook may simply test whether you know that VAT exists and is included in shop prices.
Where to get help
HMRC handles income tax, National Insurance and VAT. You can find tax forms and guidance at gov.uk. Your local council deals with council tax. Free advice on debt and benefits is available from Citizens Advice.
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