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Direct and Indirect Taxes

GCSE, AS, A Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

This short topic video looks at the difference between direct and indirect taxes

Indirect taxes are taxes on expenditure (e.g. VAT). They are paid to the tax authorities, not by the consumer, but indirectly by the suppliers of the goods or services

Direct taxes are taxes on income, profits and wealth, paid directly by the bearer to the tax authorities.

The composition of tax revenues in the UK

  • The bulk of tax revenues for the UK government comes from income tax, national insurance and value added tax. In 2016-17 they are forecast to contribute revenues worth 21.5% of GDP.
  • Most tax revenues are cyclical meaning that they rise when the economy is doing well, but fall in a slowdown or a recession.

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