Introduction:

In this online exercise on tax vocabulary, we will both look at and explain the different types of taxes which are used in Britain and Ireland and other English-speaking commonwealth countries by the government to take money from its citizens or companies.

Please note, some of the names of the taxes here are different to what they are in the United States. Go to 'tax vocabulary: names & types of US taxes' to do an exercise on the tax names in the United States.

If you don't know a lot about taxes (or the English vocabulary of tax), I would recommended that you start by doing the online exercise 'essential tax vocabulary' before doing this exercise.


Exercise: Explaining taxes

In the following conversation between two work colleagues (James and Pablo), James is explaining to Pablo the different types and names of taxes that people and companies have to pay.

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.

Pablo:'So the government takes tax from people's salary or wage, which is called income tax. What other types of taxes do I have to pay?'

James:'But it's not just your salary/wage that the government takes income tax from, it's from all of your income or earnings. So if you make money from share dividends or renting a house or from the interest you receive from your savings in the bank, the government takes income tax from those as well.'

Pablo:'Ok. I didn't know that. Are there any other taxes I have to pay from my salary?'

James:'Yes, there is. Here in Britain, the government also taxes your income or salary to pay for your pension and for unemployment benefits (if you are out-of-work) with another tax called national insurance.'

Pablo:'So, apart from my income or salary being taxed, what other taxes do I have to pay?'

James:'You also pay tax when you buy some things (like a computer or DVDs) or use some types of services (like using a taxi or eating in a restaurant). This tax is called value added tax or VAT for short. In Britain, the rate of value added tax is 20%.'

Pablo:'So many taxes. I have also heard about direct taxes. What are those?'

James:'Direct tax is not actually the name of a tax, but a type of tax. Direct taxes are all taxes which comes directly from your income, earnings or you have to pay for owning assets (like owning a house). So, income tax is a type of direct tax, because the government takes money directly from your salary or wage.

Taxes which are added to the price of products or services are called indirect taxes because the tax isn't taken directly from you. With this type of tax, you only pay it when you buy or sell things. An example of an indirect tax is value added tax.'

Pablo:'So for a company, the tax it pays on its profit. Is that a direct or indirect tax?'

James:'The tax on a company's profits is called corporation tax. And because the government take the tax directly from the company, it's a direct tax.'

Pablo:'Are there any other taxes which companies have to pay?'

James:'Yes, there are. Some companies have to pay a tax for each product or quantity of products they produce to be sold or sell. This tax is called excise duty.'

Pablo:'Why only some companies?'

James:'Because the government only places an excise duty on some types of products. In Britain, there is an excise duty on the sale of tobacco, alcohol and petrol, but not on food, books or clothes.'

Pablo:'But isn't that the same as value added tax?'

James:'It's in addition to value added tax, it's like an extra value added tax on certain products.'

Pablo:'What other types of taxes are there?'

James:'There are lots, but one of the most important is capital gains tax. This is a tax on any profit a person or a company makes from actually selling something they own. For example, if you sell your business, your house or stocks and shares, the tax on the profit you make is called capital gains tax.'

Pablo:'I heard that if somebody gives you money or property after they die, the government even taxes that.'

James:'Yes, they do. It's called inheritance tax. So it's better to give your children money or property before you die.'

Pablo:'Don't you also have to pay tax if you import something (like a car or furniture) from another country?'

James:'From some countries you do. Governments tax products that are imported from another country or sometimes even exported to another country. These taxes are called customs duties or customs tariffs.'

Pablo:'Are there any more taxes?'

James:'Lots more. There is also a tax which you pay for living in a house or flat each year. In Britain, this tax is called the council tax. The higher the value of the house/flat you live in, the more council tax you pay.'

Pablo:'Do you have to pay council tax, if you have an office or shop?'

James:'Businesses don't pay council tax, but they do pay a tax that is very similar for any land or property that they use. It's called business rates here in Britain. Like council tax, the amount of tax paid in business rates depends on the value of the land or property that the company is using (the higher the value, the more tax is paid).'


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


Quiz: Tax vocabulary - Names & types of taxes

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. Taxes where money is taken from a person's or company's income or earnings (like income tax), are a type of tax called    

         

Direct taxes:
(noun) All taxes are either 'direct taxes' or 'indirect taxes'. 'direct taxes' is the name for all the different taxes where money is taken directly from a person's or company's income, earnings or from the value of their assets (e.g. property or inheritance). Examples of 'direct taxes' are income tax, corporation tax, capital gains tax, national insurance.

'indirect taxes' are taxes on spending. They are taxes which are added to the price of a product or service. They are called 'indirect taxes' because the tax isn't taken directly from a person or company, but added to the price of the product or service. They are only paid when a product/service is bought or sold. Two examples of 'indirect taxes' are value added tax and excise duty/tax (which is paid when people buy certain products like tobacco, petrol, alcohol etc...).

In Spanish: "impuestos directos".

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Direct taxes:

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2. The tax people have to pay when they inherit money or things when somebody dies, is called    

         

Inheritance tax:
(noun) This tax is taken when people inherit property, money or assets from another person when they die. The government calculates the total value of what somebody is going to inherit and then takes a percentage of it as 'inheritance tax' (they send them a tax bill/demand of what they have to pay).

In America, this is called 'estate tax'.

In Spanish: "impuesto sucesorio".

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Inheritance tax:

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3. The name of the tax that companies pay for using property and land, is called    

         

Business rates:
(noun) This is a tax on occupying and using commercial/business property (both buildings and land). 'business rates' are paid every year by the business who is using the property (whether they own it or rent it). The amount of 'business rates' which is paid depends on what the market value of the property is seen to be. The higher the market value of the property, the higher is the 'business rates' which are paid.

In America, a similar tax to 'business rates' is 'property tax'. But 'property tax' is paid on both residential and business property and only by the owners, not by the people renting the property.

In Spanish: "el impuesto sobre bienes inmuebles comerciales".

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Business rates:

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4. Taxes which are added to the price of a product or service (like VAT), are a type of tax called    

         

Indirect taxes:
(noun) All taxes are either 'direct taxes' or 'indirect taxes'. 'indirect taxes' are taxes on spending. They are taxes which are added to the price of a product or service. They are called 'indirect taxes' because the tax isn't taken directly from a person or company, but added to the price of the product or service. They are only paid when a product/service is bought or sold. Two examples of 'indirect taxes' are value added tax and excise duty/tax (which is paid when people buy certain products like tobacco, petrol, alcohol etc...).

'direct taxes' is the name for all the different taxes which take money directly from a person's or company's income, earnings or from the value of their assets (e.g. property or inheritance). Examples of 'direct taxes' are income tax, corporation tax, capital gains tax, national insurance.

In Spanish: "impuestos indirectos".

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Indirect taxes:

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5. The name of the tax taken out of a person's salary/wage which begins with 'I', is    

         

Income tax:
(noun) This tax is taken out of the income that people (not companies) earn (from their salary/wage, interest from bank savings, dividends from shares etc...). 'income tax' is not taken from any profit which people make from selling assets or property (e.g. a house, shares etc...). There is a different tax for this, called 'capital gains tax'.

Another tax which is taken out of people's salary/wage is 'national insurance'. It is similar to 'income tax' but it is used to pay for a person's pension, unemployment and sickness benefits.

In America, it is also called 'income tax'.

In Spanish: "impuesto sobre la renta".

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Income tax:

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6. The tax which you pay for living in a house or flat, is called    

         

Council tax:
(noun) This tax is taken by the local council from people who live in a residential property (a flat or house). 'council tax' is normally paid by the people occupying/living in the property (it doesn't matter if they own or rent it) every year. The amount of 'council tax' which is paid depends on what the market value of the property is seen to be. The higher the market value of the property, the higher is the 'council tax'.

In America, a similar tax to 'council tax' is 'property tax'. But 'property tax' is paid on both residential and business property and only by the owners.

In Spanish: "impuesto sobre la propiedad".

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Council tax:

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7. A tax like 'value added tax' which companies have to pay when they sell certain types of products (e.g. tobacco or alcohol), is called    

         

Excise duty:
(noun) Also called 'excise tax' or just 'duty'. This is an 'indirect tax' which the government levy/make companies pay for selling certain types of products. Tobacco, alcohol, petrol and airline tickets are examples of some products where 'excise tax' has to be paid. Companies add the amount of money they pay in 'excise tax' on to the price they sell these products for.

Companies only have to pay 'excise duty' when a product/service is sold. If the product/service isn't sold, they don't pay 'excise duty' on it.

The level of 'excise duty' is quite high on some products. For example, the 'excise duty' on a packet of cigarettes is around 57% of the final price. But for other products, it is lot lower. For example, an 'excise tax' of 12% has to be paid on any lottery ticket sold.

On most products which have 'excise tax', people also have to pay 'value added tax' on them as well. The combination can often mean the majority of the price of a product is made up of tax (e.g. for a packet of cigarettes, on average 77% of the final price is tax).

Examples of individual taxes in Britain which are 'excise duty' are 'tobacco duty' and 'alcohol duty'.

In the United States, it is called 'excise tax'.

In Spanish: "impuesto sobre el consumo".

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Excise duty:

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8. The name of the tax which companies pay on the profit they make, is    

         

Corporation tax:
(noun) Companies have to pay this tax on all the profits they make (whether it is from selling their products or services, loans, renting property etc...). It is like an income tax for companies.

When a company makes a profit from selling assets they owned (e.g. property, stock/shares etc...), the government doesn't take 'corporate tax' from this. Instead, this profit from selling assets is taxed through 'capital gains tax'.

In America, this tax is called 'corporate tax'.

In Spanish: "impuesto corporativo".

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Corporation tax:

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9. The tax you pay when you buy products and services, is called    

         

Value Added Tax:
(noun) 'value added tax' is commonly called just 'VAT'. It is levied (put on) on buying goods and service. In Britain, it is only the end consumer who has to pay 'VAT' on the products or services they buy. If something is bought for a business purpose (a computer for an office or a part which is added to a machine), 'VAT' is not paid on it (or it can be claimed back by the business if it has already paid it).

The standard percentage rate of 'VAT' in Britain is 20%. But somethings have a lower rate of VAT (like electricity) or are exempt (not charged) from 'VAT' (like books).

A similar tax in America is called 'sales tax'.

In Spanish: "impuesto sobre la venta / IVA".

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Value Added Tax:

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10. Taxes that have to be paid when importing products, are called    

         

Customs duties:
(noun) Is also called a 'customs tariff' or 'import duty'. This tax is taken by the central government. This is a tax that is paid by the person or company importing products (and sometimes on exporting products as well).

The percentage rate of 'customs duty' depends on both the country where the product comes from and the type of product that is being imported. On products imported into Britain and Ireland which have been produced in or bought from European Union countries, no 'customs duty' has to be paid.

In Spanish: "impuestos aduaneros".

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Customs duties:

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11. The tax that both people and companies have to pay on any profit they make from selling shares or property, is called    

         

Capital gains tax:
(noun) When either people or companies sell assets (e.g. property, shares, equipment etc...) and make a profit from doing it, they have to pay 'capital gains tax' on the profit they make.

In Spanish: "impuesto sobre ganancias de capital".

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Capital gains tax:

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12. The tax taken from a person's salary which is used to pay for a person's pension, is called    

         

National insurance:
(noun) This type of tax is taken from people's salary or wage (but not from money earned from other types of income, e.g. interest from bank savings, dividends from shares etc...). It is a tax which is used to pay for people's pension when they retire and for both unemployment and disability benefits (if people need them).

In America, there are two similar taxes to this called 'social security tax' and 'Medicare tax'.

In Spanish: "impuesto de la seguridad social".

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National insurance:

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