The Sunday Times has released the 50 highest tax bills of 2021. Many see the annual list as a celebration of good citizenship. But how do taxes work? And why are they important to society?

What is tax? Tax is a financial contribution made to the government. It may come in the form of a reduction such as income tax, which is subtracted from your earnings. It can also be added to the cost of an item. VATShort for value added tax. It is payable to the government by a business that sells an item. Essential items like food are zero-rated. Children's clothes are also exceptions. is added to the cost of most items, and so-called sin taxesThese are taxes added to goods that the government considers harmful. The extra tax aims to deter people from buying as much. Alcohol, cigarettes and sugar are all examples. are placed on items like sugar and cigarettes. There are also petrol and car taxes, and stamp duty, a tax on house sales.

In the UK, everyone over the age of 18 pays council tax to fund street cleaning, waste collection and care for vulnerable people. The government also collects taxes to pay for schools, hospitals, the police, the army and other public services.

How is it calculated? Around £750bn is raised annually in tax - around £11,000 per person. Income tax is based on how much money someone is paid. The first portion of income isn't taxed. This is known as a personal allowanceIf your job pays you less than the personal allowance, you are not required to pay any tax on your income.. In the UK, this is £12,500.

Anything above the personal allowance is taxable. For UK workers, that means any pound they earn above £12,500 will be taxed. Taxes come in bands, with a basic rate of 20% for incomes up to £50,000. Any income between £50,000 and £150,000 is taxed a higher rate of 40%, and an additional rate of 45% affects income above £150,000.

Is income tax different across countries? Yes. Countries choose to tax their workers in different ways. Sweden is known for its high taxes. In 2019, the highest earners paid a huge 57.19% - more than anywhere else in the world. Denmark and Finland were not far behind, both charging over 50%.

At the other end of the spectrum, some countries do not have income taxes at all. Well-known examples include the United Arab EmiratesA country in the Middle East, and the location of Dubai. and KuwaitAn Arab state with very close relations to Saudi Arabia. It has a population of 4.3 million.. The Cayman Islands and the Bahamas are also known for being tax-havensA colloquial term for an offshore country that allows foreign individuals or business to be based there - therefore avoiding paying tax in their home country..

Does everyone pay tax? Yes - in countries with income tax. However, some with higher incomes conceal their financial information from tax authorities. This is known as evasion and is illegal.

Others find ways to reduce how much they pay by using loopholesA small mistake in laws which allows people to do something that would otherwise be illegal. in the system. Although it is legal, it has many critics. JK Rowling, who is worth £795m, describes tax avoidance as "contemptibleSomething that deserves to be despised.". And when Jimmy Carr revealed he had avoided tax in 2012, the British prime minister David Cameron described it as "morally wrong".

Who were the top spenders this year? The deadline for income tax in the UK is 31 January, meaning that anyone yet to pay their income tax has to settle their bill. The Sunday Times traditionally releases a list of those who have paid the most. This year, the top spender was Denise Coates, who turned her family betting shop, Bet 365, into an online empire that makes over £2.86bn a year.

Others on the list included Sir James Dyson who established the appliances company of the same name. Ed Sheeran joined the list for the first time and is the only musician to make the top 50 list. His bill is enough to pay over £1,000 teachers for a year.

Who didn't make the list? To have made the list this year, taxpayers needed to have paid £13.1m. In some cases, individuals or families who have been on the list for decades have fallen off. The Beckhams only paid £10m this year after losing income during Covid-19. Sir Philip Green is also absent after his retail group, Arcadia, went into administration at the end of last year.

Others may have earned enough, but they are not UK tax residents. One example is Lewis Hamilton, who earns more than 40m a year. However, he has a home in Monaco - well known as another tax-haven with no personal income tax for residents.

VAT - Short for value added tax. It is payable to the government by a business that sells an item. Essential items like food are zero-rated. Children's clothes are also exceptions.

Sin taxes - These are taxes added to goods that the government considers harmful. The extra tax aims to deter people from buying as much. Alcohol, cigarettes and sugar are all examples.

Personal allowance - If your job pays you less than the personal allowance, you are not required to pay any tax on your income.

United Arab Emirates - A country in the Middle East, and the location of Dubai.

Kuwait - An Arab state with very close relations to Saudi Arabia. It has a population of 4.3 million.

Tax-havens - A colloquial term for an offshore country that allows foreign individuals or business to be based there - therefore avoiding paying tax in their home country.

Loopholes - A small mistake in laws which allows people to do something that would otherwise be illegal.

Contemptible - Something that deserves to be despised.