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The government also takes a cut on your shopping through a consumption charge known as Value Added Tax (VAT).
This is built into the price when you buy most goods and services, such as a TV or clothes.
The main VAT rate is 20pc, but there are exemptions for items such as children’s clothing, and there is a lower 5pc rate for energy bills and some goods including child car seats.
There are some quirks to the system. For example, the full 20pc rate is charged on biscuits, but cakes are exempt.
If you have your own business, you must register for VAT if you have an annual turnover of more than £85,000 – you can also register voluntarily if your turnover is less than this.
Once you’re registered, you must add VAT to sales invoices. Traders usually offset the VAT charged by their suppliers against the VAT charged to customers via their VAT return.
There may be capital gains tax (CGT) to pay if you make a profit from selling a valuable asset, such as a second home, shares or other possessions.
Everyone gets a tax-free CGT allowance, which is £6,000 in 2023-24 – reduced from £12,300 in the previous tax year. The allowance is set to reduce to £3,000 from April 2024.
The amount you pay depends on your income and what you are selling.
If you’re not selling property, basic-rate taxpayers pay 10pc CGT, rising to 20pc if you’re a higher-rate or additional-rate taxpayer.
Profit made from selling a property that isn’t your main residence is taxed at 18pc if you pay basic-rate tax, or 28pc if you pay a higher rate.
While profits made from selling other assets can be included as part of a self-assessment tax return, gains from residential property sales must be reported via a UK property return and tax must be paid within 60 days of selling the property – in addition to detailing the sale in a tax return.
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