Economic influence on business activity

Updated on June 27, 2022

Businesses are heavily influenced by the state of the economy. Prices, investment decisions, and the number of employees that companies employ are all influenced by the amount of money that consumers are willing to spend.

Distinguish the difference between income tax, VAT and corporation tax

A tax is a financial charge imposed by a government on individuals, businesses, and other organizations. We distinguish between direct and indirect taxes in the United Kingdom. A person or business pays a direct tax to the government by transferring a portion of their earnings or profits to the government. Indirect taxes are levied at the point of sale of a product or service.

What is taxed directly?

When you earn money, you must pay income tax, which is deducted from your take-home pay. There are three levels of income tax: “basic,” “higher,” and “additional.” These levels are based on a person’s taxable income. Profits accrued by sole proprietors and partnerships are subject to federal and state income taxes.
In the United States, a corporation tax is levied on a company’s pre-tax earnings. Taxes of this kind only affect private and public corporations.
Health care, state pensions, and employment-related benefits like Jobseeker’s Allowance are all covered by NICs. The cost is shared equally by employers and employees.
Included in these taxes are:

Sales of goods and services are subject to VAT, which is a tax based on the value of the item sold. It is collected by businesses and then passed on to the government. Most products and services sold in the United Kingdom are subject to VAT.