Indirect Tax

Direct tax, in the form of income tax, local authority rates, capital gains tax and capital transfer tax, were discussed in Chapter 3. These are taxes the burden of which is borne by those people who pay the taxes. But there are other taxes which, because those who initially pay them are able to pass the burden on to other people, are called 'indirect taxes'. These are taxes on goods and services paid by the suppliers but recovered from the eventual consumers of the products in the form of higher prices.

Individuals are less conscious of the incidence of indirect tax than they are of direct tax, because the burden is concealed in the retail price. It may come as a surprise to many to learn that, on average, one-seventh of all the money they spend on goods and service is tax. And it is tax paid out of their incomes that have already been charged to income tax!

National Insurance contributions

National Insurance contributions were treated in some detail in Chapters 1 and 2. Here we merely draw attention to the point that, if these contributions are regarded as a tax (and there are differences of view on this), then the employee's contribution is a direct tax since he cannot pass it on, but the employer's contribution is an indirect tax, since he naturally has to cover the cost of it in the prices he charges for his output. His NI contributions are a part of his overall cost of employing labour.

NI surcharge

The employer of labour also has to pay a tax on all wages he 122

pays, called a 'surcharge', of 3.5%. This is also a part of the cost of hiring labour and has to be recovered in prices. Although this wages tax is paid in the first instance along with his employer's NI contributions, this is purely for the administrative convenience of the authorities. The amount is passed on by the Department of Social Security to the Inland Revenue.


Accommodation Test Questions

1. What is meant by the term 'ground rent'?

2. What are the main fixed costs associated with an owner-occupied property?

3. In the case of a house let unfurnished to a short-term tenant, which of the fixed costs are usually payable by the landlord?

4. Name some of the items of variable expenditure associated with the owning of property. Which of these would usually be payable by the landlord in the case of leasehold property?

5. What is a 'service charge' payable by the owner of a leasehold flat?

6. A freehold property that is well looked after... see: Accommodation Test Questions


Refunds, Personal And Business Finance 2017

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