How local tax works
How do we raise money to pay for local services - parish, district and county councils?
At the moment the money that is spent by parish, district and county councils comes from the Council Tax collected by district councils and from central government money collected through income tax, value added tax (VAT) and all the other levies that are paid to the Revenue and Customs.
Income Tax(es) • Council Tax • VAT
For the purposes of this website, the total revenue that the government receives is split into these three types.
Income Tax(es)
This type of revenue comes, generally speaking, from tax on personal earnings, business profits, gains made on property value. It is collected by Revenue and Customs.
Council Tax
Council Tax is a local tax, set by councils to help pay for local services like policing, fire and rescue, education, social services and refuse collection. It applies to all domestic properties, including houses, bungalows, flats, maisonettes, mobile homes or houseboats, whether owned or rented.
This does not account for all of their spending. The government operates a direct grant system whereby councils are given a share of the nationally collected tax to help pay for the services they provide.
Example local authority budgets
| £ million (rounded) | £ per person | Percentage of total | |
|---|---|---|---|
| Income from ‘selling’ services and from investments | 124 | 169 | 13% |
| Grants from the Government for specific activities | 464 | 634 | 47% |
| Formula Grant | 119 | 163 | 12% |
| Council Tax | 275 | 376 | 28% |
| Figures taken from Devon CC website for 2006-07 | |||
| £ million (rounded) | £ per person | Percentage of total | |
|---|---|---|---|
| Income from ‘renting’ and from investments | 11 | 95 | 35% |
| Grants from the Government | 18 | 156 | 55% |
| Council Tax | 3 | 26 | 10% |
| Figures taken from Torridge DC website for 2004-05 | |||
Please don’t get too picky about the figures. They are rounded and based on population figures from different sources. These tables are to illustrate rough figures only.
Value Added Tax (VAT)
VAT is a tax on the value added to an item as it passes from one person to the next in the wholesale and retail chain. So if I buy an item for £100 and paint it, package it, provide an instruction manual for it to be sold at £150, I will pay VAT on the £50 difference. This actually occurs by me paying VAT on the £100 to my supplier; charging VAT on the £150 when I sell it and then paying the difference (VAT on £150 - VAT on £100) to Revenue and Customs at the end of the month.
Those of us at the end of the chain pay the VAT on the final price. At the moment this is 17.5% on most items, 5% on some and 0% on others. There are also things that are exempt. There is a difference between 0% and exempt but that needn’t concern this discussion.
