Lesson video

Hello, I'm Mrs. Haynes and today I'm going to teach you, a key stage for citizenship lesson, I hope you enjoy it.

Right, let's get started.

So today is the second lesson that I've done, looking at the economy, and our main question today is regarding taxation, and government spending.

And we're going to look at whether anyone, could actually avoid paying taxes.

It's interesting, just to kind of mention that lots of information I look at today, can change quite considerably, depending on the government that's in charge and the emphasis that they place on public spending, on different types of things.

I thought I'd start by showing you a picture of Benjamin Franklin.

He is one of the founding artists of America.

Now, lots of people know this quote about taxes, but they don't necessarily know that it came from Benjamin Franklin.

So I just thought I'd put this one here.

And he quite famously said, that nothing in this world is certain except for death and taxes, suggesting that these two cannot be avoided.

So just for a moment, I'm going to ask you, to kind of just pause for a second, and think if you had to explain to somebody who was perhaps an alien what a tax is, how would you do that? Just pause from a moment to think.

Now I would say something like this.

If I was asked what a tax was.

I think I would describe a tax as the money that is taken by the government to pay for all the things that it has to govern.

So I suggest that you make a quick note of that, perhaps it's a good idea to pause again for a moment while you write that down.

Now our lesson today, is going to cover two questions initially, and then move on to that kind of overall question that we saw in the very first slide by the end of today's session.

So we're going to look at two things.

We're going to look at, what the actual different taxes are, that are collected by the UK Government.

And then what does the UK Government spend our taxes on? Okay, so, and then at the end of that, we'll return to the overall question about whether anyone can avoid taxes.

So, our first question then of those two, what are the different taxes collected by the UK government? Right, now I'm going to ask you to pause the video on the next slide.

And I'd like you to match the correct type of tax, which is numbered on the left, to the correct explanations, which are on the right.

So pause the video now.

Good luck with that.

Okay, so now I'm going to give you, the correctly match taxes and explanations.

So here we have still the taxes on the left-hand side, and the explanations on the right, however, I've now put the correct numbers together so that you can see which ones connect to which ones.

I've left them in the same places, I've just put the numbers next to them, okay? So if we just have a look at this, so number one was talking about income tax.

Let's have a look at which one I put number one, next to on the right-hand side.

And you can see that it's about halfway down on the right-hand side there under explanations, and it says tax charged on your earnings, when you make over 10,500p.

a.

So I just want to clarify for you that that's p.

a means per annum.

Which is what people write when they mean per year.

Okay, it's Latin, it means per year, right? And it's interesting.

You might be interested to know that if you earn over 150,000 a year, you'll actually pay 45% tax on your earnings, and that's quite a difference.

Okay, and then number two is national insurance.

And number two, you'll see down there at the bottom, is the taxes earned to build entitlement to certain state benefits such as a state pension.

Now this is something that was expanded by Clement Attlee and the Labour government back in 1948, as kind of part of building a supportive welfare state and with the inclusion of the new NHS then.

Number three, excise duties, not exercise careful how you spell that one, excise duties.

And those are those duties paid on the purchases of alcohol, tobacco and fuels, petrol, diesel.

Number four, corporation tax, tax on business corporations based on their profits.

I tried to give you a bit of a clue there.

Number five value added tax.

Now, number five, I've put them in some indirect tax paint on a range of goods and services currently charged at 20%.

So let me just explain this indirect tax.

So this value added tax which is better known as VAT, is usually embedded within the cost of something that you raise, that you get.

For example, if you had a bill at a restaurant for your meal, they would be VAT charged within that bill but you just pay the total bill.

You don't necessarily separate that out and pay it as a separate tax, equally, if you had a plumber come to the house, and do a job for you, they would give you their bill, their hours and the parts and they would put on that, the VAT, the tax and then give you a final bill.

So it's kind of hidden within the bill, it's called an indirect one as opposed to the others, which are direct taxes.

It's worth noting that as well that the indirect tax and VAT is not on essential items. And what we mean by that are things like food, books, children's clothing.

However, it is on things like sanitary products, in Margaret Thatcher's time, she extended the list of things that VAT will be paid on.

And that was one of the things that it was extended to.

So that was not counted as an essential item.

We have quite a debate in that class usually.

It was a really controversial move at the time.

So good to know what you think about that? And then let's get back to this number six with business rates, which are the tax paid by businesses on the value of that premises.

Number seven, council tax, number seven is the tax that is dependent on the value of your property, okay? So everyone owns a property, will pay a council tax, on the value of their property.

Just before we move on, I'd just like you to make note of the fact that business rates and council tax, those last two, there, are the ones that are where the money is directed, towards the local authorities.

So local authorities keep all the money raised by council tax.

And at the moment they keep half of the money raised by business rates, I think that's going up to 75%, at some point during this year, but the rest of those taxes they're number one through to five go straight to central government.

Okay, I just thought I'd put this slide up for you now which shows you the correct tax, right next to the correct explanation.

You're very welcome to pause on that side, if you want to, for checking for a moment to check that you have written them down correctly.

Okay, I thought this slide just made it a bit clearer for us all.

Okay, now this one, I'm just wanting you to spend a couple of seconds just looking at this, and identifying which two of these are also UK taxes.

So just pause for a second and decide which one you think, or which two you think are taxes.

Okay, here's the answers.

So I've highlighted the answer for us here.

So well done, if you said option one or four, this is just, I wanted you to know that there are other taxes on specific things.

For example, here, inheritance tax, which is paid on the value of someone's goods and property when they die.

And also there's something called a stamp duty which is a tax you pay, when you buy a home, if it's worth over 125,000.

I should mention the moment that all the figures I've got here are current at the moment in June, 2020, but obviously things change.

Okay, so that's the kind of taxes we'll pay.

So what does the UK government spend these taxes on? The second part of our questions.

Right, so now I'm going to ask you to pause the video for a moment, and then using the first five pages of the worksheet, complete these four questions, try and include statistical data in your answers.

This is just going to increase your ability to analyse and evaluate statistical data.

I'm going to read the worksheets through now.

So stay listening, if you think that might assist you with these questions.

The questions are, number one, which three taxes give the UK government the most income? Number two, which three areas do the UK government, spend the most money on? Number three, what does balancing the budget mean in relation to the UK government and is this likely by 2021? Number four, why would making small changes, to the rates of income tax and VAT, make a significant difference to government revenue, income? Okay, I'm going to read the worksheets to now, first five pages.

Information in this worksheet is from the document produced by the office of budget responsibility, OBR, called, A brief guide to public finances.

To read the full document, go to the OBR website.

What is the OBR? Now, the Office of Budget Responsibility, was created to provide independent analysis of the UK's public finances.

It's works closely with government departments and the Chancellor of the Exchequer, providing the information needed to take tax and spending decisions.

Government income, 2019 to 20.

It was forecast, the government income, from the public sector would be 811.

4 billion pounds.

The taxes that bring in the most money are, income tax and National Insurance contributions which together are expected to raise around, 340 billion pounds.

Value added tax, VAT, is the next most important, expected to raise 137 billion.

Other big taxes include, corporation tax, council tax, business rates, and field duty.

And you've got sort of table, that you can take a closer look at that.

Government expenditure 2019 to 14.

I might not read out all of the different figures, but you can see this there.

In 2019 to 20 public spending was forecast to meet 840.

7 billion pounds.

37% of public spending will be on public services.

The biggest items are health, education and defence.

State pensions expected to cost 101.

3 billion pounds.

Other big items, include housing benefit which is paid people of working age, and job seekers allowance, or some people may now know that as the new universal credit, which is paid to the unemployed and is expected to cost just 2.

5 billion Balancing the budget.

As you may have noticed from the previous pages, the government plan to spend more than it received in 2019 to 20.

When total spending in a year is higher than total receipts, the government needs to borrow to cover the difference.

Balancing the budget The graph shows how the government aims to balance the budget, having almost the same income as it has expenditure.

It may like to have slightly more income than expenditure, so that it can pay back any debts or lower taxation, which may then give the economy a further boost.

Prior to the coronavirus pandemic, the government had hoped to close the gap, between the income and expenditure into by 2021.

But that seems unlikely now.

Okay, let's have a look at the answers to these questions.

Which three taxes gave the UK government the most income? So the three taxes that give the UK government, the most income are, so you can see how I've used the question in my answer.

Income tax, National Insurance and VAT.

Now I'm going to put in the statistics.

These were forecast to bring in around 470 billion, in 2019 to 20, according to the Office for Budget Responsibility, OBR, because I've put OBR in brackets there.

It means that in future if I refer OBR, I can do that without having to write every time, Office of Budget Responsibilities, which can save a bit of time in an exam, perhaps.

Which three areas of the UK government spend the most money on? The three areas that UK government spend the most on, are health, state pensions, and other welfare benefits such as universal credit.

In total, these are likely to cost 332.

6 billion in 2019 to 20, I just added them up.

Number three, what does balancing the budget mean in relation to the UK government and is this likely? The UK government aims to balance the budget, which means that it has similar levels of income and expenditure in other words, so I'm explaining my point, now.

In other words, the amount of gains through taxes and other forms of income, it's similar to the amount of taxes spend on public services paying the interest on any debts, and investing in things.

The OBR estimated that, without the arrival of the Corona virus in 2020, the UK government might almost balance the budget in 2020.

However, this is now unlikely.

Number four, why would making small changes to the rate of income tax and VAT, make a significant difference to the government revenue income.

This would make a significant difference as these taxes are paid by everyone, and the government would therefore, receive a change in revenue.

A small increase in VAT on every transaction would produce a large increase in funding for the government.

Okay, let's have a look at our main question for the lesson then, can taxes be avoided? I'm going to ask you to watch this short video now, and then I'm going to read the final page of the worksheet to you which talks about tax avoidance.

Stay with me after the video, If you'd like me to read to you the final worksheet.

There's something lurking in the shadows just hidden from view.

Do you believe in ghosts because we do.

And they're causing quite a problem for all of us here in the UK.

Where Her Majesty's Revenue and Customs HMRC for short, where the UK's Tax Authority, and we know all about ghosts, and what's more, we're tracking them down.

These ghosts aren't the spooky supernatural variety, but they and a similar group called moonlighters, are good at hiding, becoming invisible when they want to be.

Ghosts and moonlighters are the names that are often given to people, who contribute to what's called the UK's hidden economy.

You might've read about them in the newspaper or online.

They are the small minority of people, who ignore the law by keeping all or part of what they earn, hidden away in order to avoid paying tax.

And it's because they keep their earnings hidden, that we describe what they do as the hidden economy.

So let's look at these people a bit more closely.

The people who keep all their income hidden from HMRC, are often called tax ghosts.

And they break the law by pocketing all the money, they should be paying in tax.

Moonlighters are people who pay tax on some, but not all of their earnings.

They could be electricians, taxi drivers, doctors, landlords, artists, IT wizards or anything else for that matter.

They're ordinary people doing regular jobs but the reason they only pay tax on some of the income, is because they also do work on the side.

Perhaps in the evenings or weekends, and that's the bit they keep hidden from HMRC.

Pretending they own less money than they actually do.

And paying less in taxes than they should.

These tax cheats could be operating in your city, in your town, even in your street.

So should you be concerned? Should you even care? Well, we think you should, and here's why.

When ghost to moonlighters cheat HMRC, the people they're really cheating are you.

The money they should have paid in taxes, would have been used by the government to build schools and colleges, to pay your teachers salaries, to save and improve people's lives, through the health service.

It's a fight crime and defend our country.

But instead the people who operate in the hidden economy have decided they should spend that money on themselves.

And they hold onto more than 5 billion pounds every year, money that should have been paid in taxes to help everyone, leaving the rest of us to pay more for the vital services, we all rely on, for our health, education, safety and security, not paying taxes can also give dishonest people an unfair advantage because the person who's cheating by not paying tax, may be able to charge less for the goods and services they sell.

And this means that in undercutting prices, they take customers away from honest businesses.

And we're sure you'll agree, that's just not fair.

This is why the hidden economy is a real problem.

So what is HMRC doing to track down the ghosts and moonlighters? Well, we know that some people may slip into the hidden economy, without realising it.

For example, they don't realise that what started out as a hobby, perhaps buying and selling things on the internet, has now become a business on which they should pay tax.

HMRC helps those people through education and publicity campaigns, so they understand, when they do need to pay tax.

But for the people who try to stay hidden, and who refused to come out of the shadows, HMRC has teams of top investigators, hundreds of them, whose job it is to search out, the ghosts and moonlighters.

The investigators use lots of different information and techniques ranging from tax inspectors who operate undercover to identify suspicious behaviour to a powerful new fraud busting computer system called connect, which brings together information from lots of different sources.

Connect helps HMRC to find the patterns and links in 1 billion pieces of data.

By looking at bank accounts, loans, addresses, tax and employment details.

Even using Google Earth, to check if people's lifestyles are consistent with the amount they say they earn.

HMRC can identify the people who aren't paying the right amount of tax.

When they're caught, the ghosts and moonlighters have to pay back all the missing tax plus interest and financial penalties.

And they're often named and shamed in the local papers.

In serious cases, they can even be sent to prison.

So maybe you're thinking, well, that's all very interesting, but what's it got to do with me right now? Well, you could be starting your first job soon maybe a part-time Saturday job or a holiday job.

And you need to know the dangerous to look out for, for example, if you're going to work for someone else then you should be suspicious, if your new boss doesn't ask you to complete any paperwork, when you start work.

Doesn't ask you for your national insurance number.

Pays you in cash and doesn't give you a payslip.

This is important.

You don't want to start off your working life in the shadows as part of a hidden economy.

If your boss isn't paying taxes, they won't be making national insurance contributions either to entitle you to certain benefits including in a few decades time, your pension.

And we don't want to worry you but if they're ignoring the tax rules they might also be ignoring other important things, such as health and safety checks, and insurance cover, which is important in case something goes wrong, and you have an accident at work.

If you're worried, you should speak to an adult you trust.

And if they're concerned, they can contact HMRC by calling the confidential tax evasion hotline on 0800788887, or by going to the reporting tax evasion page on the gov.

uk website when it comes to your career, be smart, protect yourself and keep well away from ghosts.

Thanks for listening.

Okay, so I can read the final page of the worksheet.

Tax avoidance and evasion.

Tax avoidance is arranging your finances, so that you pay the least amount of tax due.

The government described tax avoidance as bending the rules of the tax system to gain a tax advantage that parliament never intended.

It involves operating within the latter but not the spirit of the law.

So you're not actually breaking a law to some of these tax avoidance methods, but you're bending the law slightly.

So although people do try to avoid some taxes, it could be viewed as cheating, and not paying what you owe the state.

The majority of people recognise that being a citizen in the UK has many benefits such as free healthcare, education, and that these need to be paid for.

So paying our taxes can be viewed as a civic duty.

Tax evasion is lying about your finances to the government, and it is a criminal offence.

Tax invaders are sometimes called ghosts.

Okay, now having completed most of today's lesson, I'd like you to answer the following question for me.

Give three reasons why people should pay their taxes.

Yes, I'd like you to think about that pause here, and then we start once you've got three answers for that for me.

Right, now your answers could have included, any of the following.

I may not have worded them, like would have done, but you're understanding, if we have the sort of similar meaning together.

So you could have written that they are legally about obliged to pay their taxes.

So that's why they say it's the norm.

You could have written, that it's a key part of a British citizen, it's our duty.

You could have written that it's a requirement that everybody has to do it, so there's equality within this, and that's why they should have done.

You could have put that our taxation money is needed because the government needs to spend the money on a variety of areas, such as defence.

You could have put the taxation's often carefully calculated to be within the means of those who are paying it.

So they're not charging everybody the same rate of tax quite often with those different taxes.

Or you could have put the taxation allows everyone, to access the essential services.

Well done if you've got any of those three, or any three of your own, I mean.

Now, for further reading, if you found this particularly interesting, you might like to investigate how the government actually sometimes encourages people to pay less tax, for example, by investing in pensions, and they do that in order to perhaps increase our spending, which if you would've seen our previous video, on the economy than I did, you'll know that spending, is what therefore encourages the economy to grow, okay/ Right, well, I really hope you've enjoyed my lesson today, and my third lesson on the economy, will be on the local authority spending, that's all for today, thank you very much, bye, for now.