Introduction:

Everybody has to pay taxes to the government. You are taxed on almost everything, the money you earn, your savings, the things that you buy and even when you die.

In this online exercises on 'tax vocabulary', we will look at and explain the meaning of the most commonly used English vocabulary for taxes for both business and non-business.

To learn the names of different types of taxes, you can do an exercise on ' British tax vocabulary' or an exercise on 'American tax vocabulary'.


Exercise: Explaining taxes

In the following conversation between two work colleagues (Peter and Juan), Peter is explaining to Juan the meaning of different tax vocabulary.

From the context, try to guess what the meaning of the words/phrases in bold are. Then do the quiz at the end to check if you are right.

Juan:'I have just received my first pay slip which says how much money I have earned from working here and I am not sure how much money I am going to receive.'

Peter:'The money that the company will pay into your bank is called the net amount. Net means after taxes and other costs have been removed. So you are going receive in your bank account £2,234.'

Juan:'I see it. There's another number/figure on the payslip which says gross next to it. It's more money than the net number/figure. What's that?'

Peter:'Your gross salary or wage is the amount of money the company actually pays you. Which for you is £2,765. But this is before taxes and other costs have been deducted or removed from your salary. That's why it's higher than the money you actually receive.'

Juan:'£531 is a lot of money to pay in taxes.'

Peter:'Not really, the tax rate you pay from your salary is 25%. I know some people who have to pay a 47% tax rate.'

Juan:'But £531 isn't 25% of £2,765, it's about 19%. Have they made a mistake? Do I have to pay more tax?'

Peter:'No, in this country you are exempt from paying any income tax on the first £620 that you earn every month. Basically, you don't pay any tax on that amount. You only start to pay income tax on any money you earn over £620 per month. The amount of money where you have to start to pay tax is called the tax threshold.'

Juan:'So, I only pay income tax on the money I earn over £619 each month from my salary?'

Peter:'Yes, you are liable for paying tax over £619. You are required to pay tax over that amount (you're not exempt from paying tax).'

'You earn about £33,000 a year, don't you?'

Juan:'Yes, my gross salary for a year is about that.'

Peter:'Well, if you earn over £35,000 you enter a different tax bracket. This means that all the money you earn over £35,000 is taxed at a different tax rate. The income tax rate increases to 47%.'

Juan:'So, if I start to earn over £35,000, I pay 47% income tax on all the money I earn instead of 25%?'

Peter:'No, you would pay both tax rates. For the part of your income below £35,000 and above the tax threshold, you always pay a 25% tax rate no matter how much you earn. You only pay 47% in tax on the part of your income which is £35,000 or over.'

Juan:'OK. In Spain the government sometimes give people money back if they have paid too much tax. Does this happen here in Britain?'

Peter:'Yes, it does. It depends on how much money you have paid in taxes during the tax year.'

Juan:'Sorry to interrupt, but what's a tax year?'

Peter:'The 12 months that the government uses for claiming/collecting taxes. In this country, the tax year starts in April and finishes at the end of March. You started your job here in September, didn't you?'

Juan:'Yes, I did. I moved to Britain from Spain then.'

Peter:'Because you started your first job in Britain in September (which is in the middle of the tax year), by the end of the tax year you will have paid more income tax than you should have. You should get you a tax refund, where the government gives you back your overpaid taxes. When you have paid less tax than you should during the tax year, the government will ask you to pay them money and this is called a tax demand.'

Juan:'Do I have to fill in a form to tell the government how much money I have earned at the end of the tax year?'

Peter:'In Britain you don't have to do a tax return to tell the government how much money you have earned, our company will do it for you. It's normally only self-employed people (who work for themselves) and companies who have to do a tax return and send it to the government.'


Now do the QUIZ below to make sure you understand the meaning of this vocabulary.


Quiz: Essential tax vocabulary

Below is a definition/description of each of the words/phrases in bold from the above text. Now fill in the blanks with one of these words/phrases in bold. Only use one word/phrase once and write it as it is in the text. Click on the "Check Answers" button at the bottom of the quiz to check your answers.

When the answer is correct, two icons will appear next to the question. The first is an Additional Information Icon "". Click on this for extra information on the word/phrase and for a translation. The second is a Pronunciation Icon "". Click on this to listen to the pronunciation of the word/phrase and to do a pronunciation speaking test.

1. A different way to say you 'don't have to' pay tax, is    

         

Exempt:
(adjective). This is a formal way to say 'not required' or 'don't have to'. This is commonly used when people talk about taxes. 'exempt' is often followed by the preposition 'from' and a gerund (e.g. paying, doing etc...) and then the thing that the person is not required to do. For example, people under 18 are exempt from paying income tax.

It is not only used to talk about taxes, but many other things as well (e.g. to be exempt from doing military service or to be exempt from paying money etc...).

In Spanish: "exento/libre".

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Exempt:

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2. The period of time that a government uses to calculate the amount of tax that people have to pay it, is called the    

         

Tax year:
(noun) The government calculates how much tax people have to pay it every 12 months. This is called the 'tax year'. Before the 'tax year' ends, people have to submit a 'tax return' telling the government about their overall earnings/income for the year. After the 'tax year' has finished, the government calculates how much money people should have paid them in tax. If they haven't already paid the full amount of taxes they are required to do, they are sent a 'tax demand/tax bill' (telling them how much money they still have to pay). If they have paid more than they should, they are given money back in a 'tax refund'.

The 'tax year' is only used for calculating the tax for people's incomes and not for companies (who submit a tax return at the end of calendar year or their own company accounting year (which can be any time)).

When the 'tax year' starts and finishes is different in different countries. In Britain, the 'tax year' starts on the 6th of April of each year and finishes on the 5th of April the following year. In Spain, it always starts on the 1st January and finishes on the 31st December.

In Spanish: "año impositivo/fiscal".

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Tax year:

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3. Income or earnings before tax has been removed, is called    

         

Gross:
(adjective) The word 'gross' in this context (e.g. gross salary, gross profit etc...) is used to mean the original amount of money paid/earned/given to somebody before deductions are made. This is used for all types of incomes and earnings (e.g. income, profit, interest, salary etc...). Although normally the deductions are taxes, for salaries deductions can also include pension payments, private health insurance payments etc...

After all deductions have been made, we call the amount which somebody actually receives 'net', e.g. net profit, net income.

In Spanish: "bruto".

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Gross:

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4. A document which that a company or person sends to the government, so the amount of tax they have to pay can be calculated, is called a    

         

Tax return:
(noun) This is a normally a form which is completed by companies and people so the government can calculate how much tax they have to pay. 'tax returns' are normally filed (submitted/sent) by people before the end of the tax year and by companies before the end of their accounting year.

Normally, in the form you have to include details with evidence of your income/earnings (from a job, investments, savings etc...). You can also include things which can reduce the amount of tax you have to pay (e.g. things which are tax deductible (you don't have to pay tax on), like private health insurance, money given to charities, business expenses etc...).

In America, everybody has to submit a 'tax return', but in Britain only companies and self-employed people have to do one.

In Spanish: "declaración de impuestos".

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Tax return:

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5. The quantity of money when you begin to pay tax, is called the    

         

Tax threshold:
(noun) The 'tax threshold' is the amount of money where a person or company has to start paying tax. For some types of taxes (e.g. income tax, corporation tax etc...) you don't have to pay tax on all your income and earnings (e.g. salary, profit etc...). You only have to pay tax on your income and earnings which is above a certain quantity (e.g. £450 a month). This point when you start paying tax, is called the 'tax threshold'. Even if your income or earnings is over the 'tax threshold', you still don't pay tax on the money you have below the threshold (it's still tax free).

Not all taxes have a 'tax threshold'. With sales tax/value added tax for example, tax has to be paid on all the price/cost of the product or service.

In Spanish: "umbral fiscal".

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Tax threshold:

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6. When the government tells you to pay more money in tax than you have already done, is called a    

         

Tax demand:
(noun) A 'tax demand' (which can also be called a 'tax bill') is when a government tells/asks you to pay more money to them in tax. They do this when they have calculated that you haven't paid enough money to them in tax (underpaid) than you should/are required to do. They always make 'tax demands' after the end of the tax year (or accounting year for companies) and normally you have to pay them the money they are asking for.

In Spanish: "petición de pago".

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Tax demand:

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7. The percentage which tax is taken from something by the government, is called the    

         

Tax rate:
(noun) This is the percentage rate of a tax. For example, in Britain the 'tax rate' of value added tax (called sales tax in America) is 20%. So, if a shop sells a product for £1, it has to give the government 20 pence in tax.

In Spanish: "tasa impositiva".

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Tax rate:

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8. If a tax has different tax rates, the quantity of money where you have to pay each different tax rate, is called a    

         

Tax bracket:
(noun) It is also called a 'tax band'. Some taxes have different tax rates (e.g. income tax). Normally in these type taxes the percentage of the tax rate increases (but in some taxes it decreases) the higher the income or earnings. 'tax brackets' state at what quantity of income/earnings that each different tax rate starts and stops. For example, imagine an income tax has three different tax rates: 25%, 30% and 45%. The first tax rate's (25%) 'tax bracket' starts at $10,000 and finishes at $24,999. The second 'tax bracket' starts at $25,000 and finishes at $49,999 with a tax rate of 30%. The last 'tax bracket' is for income of $50,000 and over and has a tax rate of 45%.

In Spanish: "categoría contributiva/tributaria".

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Tax bracket:

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9. When the government gives you back money that you paid them in tax, is called a    

         

Tax refund:
(noun) A 'tax refund' (which is also called a 'tax rebate') is when you have paid more tax to the government than you should have done (overpaid) and they return the money you have overpaid to you. 'refund' means to give you back money. In some countries you have to claim (ask for) a 'tax refund' yourself if you think you have paid more tax than you should. In others it is automatically done by the government without you having to do anything. For both this is done after the 'tax year' (or accounting year for companies) has finished.

In Spanish: "reembolso contributivo / reintegro de impuestos".

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Tax refund:

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10. The opposite of 'exempt' from paying a tax, is    

         

Liable:
(adjective) In this context it means you are 'required/have to' or 'not exempt from' paying tax. It is very commonly used when people talk about taxes. For example, 'all people over 18 are liable for paying income tax'. It is normally followed by the preposition 'for' and 'paying' and then the name of the tax (see above example).

In Spanish: "sujeto".

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Liable:

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11. Income or earnings after tax has been removed, is called    

         

Net:
(adjective) The word 'net' in this context (e.g. net salary, net profit etc...) is used to mean the amount of money you actually receive/have after deductions are made. This is used for all types of incomes and earnings (e.g. income, profit, interest, salary etc...). Although normally the deductions are taxes, for salaries deductions can also include pension payments, private health insurance payments etc...

Before deductions are made, we call the original amount of money which somebody is paid/earned/given 'gross', e.g. gross profit, gross income.

In Spanish: "neto".

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Net:

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12. A more formal way to say 'removed', is    

         

Deducted:
(verb) The infinitive of the verb is 'to deduct'. It is a more formal way of saying 'to remove' or 'to take off'. It is commonly used to talk about money. For example, 'taxes are deducted from salary before employees receive their money'.

With taxes, there is also the word 'deductible' (sometimes called 'tax deductible'). This is the name for things which if you spend your money on them (like giving money to charity or paying for private health insurance), you can reduce the amount of money which the government will tax you from. For example, if you earn $50,000 and you give $2,500 to charity (which is 'tax deductible'), the government will only take income tax from $47,500 of your income and you will pay less tax.

In Spanish: "deducir".

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Deducted:

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To learn the names of different types of taxes, you can do an exercise on ' British tax vocabulary' or an exercise on 'American tax vocabulary'.



Practice

Now that you understand the new vocabulary, practice them by creating your own sentences with the new words/phrases.

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