Managing taxes and bills

what are taxes and why do adults pay them?

Tax can be a bit of a tricky concept to navigate but to put it simply from the age of 18 and onwards, tax is what businesses and individuals pay to the government which is utilised towards healthcare services like the NHS, schools and public transport. It’s great to have an understanding of the basics that can help you manage your finances more effectively and know exactly where it’s going.

some types of tax we pay!

• Income Tax

   - Income tax is levied on your earnings from various sources, including employment, self-employment, pensions, and rental income.

   - The UK operates a progressive income tax system, with tax rates ranging from 20% to 45% depending on your income level.

   - Everyone is entitled to a tax-free personal allowance, which is £12,570 for the 2021/2022 tax year. Income above this threshold is taxed at the applicable rate.

National Insurance Contributions

•    -National Insurance Contributions are payments made by employees and employers to fund state benefits, including the state pension and healthcare.

   - NICs are calculated based on your earnings and are payable if you're over the age of 16 and earning above a certain threshold.

   - The rates and thresholds for NICs vary depending on your employment status and earnings.

• Value Added Tax (VAT)

   - VAT is a consumption tax levied on the sale of goods and services in the UK.

   - Most goods and services are subject to VAT at a standard rate of 20%, although some goods and services are taxed at reduced rates (5% or 0%) or are exempt from VAT altogether.

   - VAT-registered businesses charge VAT on their sales and reclaim VAT paid on their purchases, while non-registered businesses cannot charge or reclaim VAT.

How we pay taxes

Bills and how we prepare for them 

Managing bills means making sure we pay for things we need, like our home, electricity, and food, without spending too much money. Here's how to do it:

1. **Know What You Have**: Figure out how much money you get from your parents, like pocket money or allowances. That's your income.

2. **Understand Your Bills**: Bills are things we have to pay for every month, like the rent or mortgage for our home, the electricity and water we use, and maybe even our phone or internet.

3. **Make a Plan**: Make a list of all the things you need to pay for each month. This is like a shopping list but for bills. It might include things like rent, electricity, water, and maybe even saving some money for something special.

4. **Stick to Your Budget**: Once you know how much money you have and what you need to pay for, try not to spend more than you have. If you have £10 pocket money, but your phone bill is £5, you know you can only spend £5 on other things.

5. **Pay on Time**: Some bills have to be paid by a certain date, like the rent or electricity bill. It's important to pay these on time so you don't get in trouble or have to pay extra fees.

6. **Save for a Rainy Day**: Sometimes unexpected things happen, like your bike breaks or you get sick. It's a good idea to save some money for emergencies so you're ready if something unexpected comes up.

7. **Ask for Help if You Need It**: If you're not sure how to manage your money or if you're having trouble paying your bills, don't be afraid to ask your parents or a grown-up for help. They can give you advice and support to make sure you're taking care of your money the right way.