A direct tax is a tax paid directly to the government that cannot be moved to another person or entity. For example, in the UK income tax is a direct tax, as the person on which it is levied must pay it directly to the government. In addition to income tax the other main direct taxes in the UK are capital gains tax, corporation tax and inheritance tax.
Direct taxes are charged on income, profits and gains, and so normally allow a deduction to be made for expenses before the tax is calculated. Income tax, capital gains tax and corporation tax are self-assessed and it is therefore up to the taxpayer to calculate how much tax is owed based on their view of the law.
Indirect taxes, by way of contrast, are charged on the value of a transaction, without making a deduction for expenses. Stamp duty land tax and VAT are examples of indirect taxes (although VAT is unusual for an indirect tax in allowing the VAT incurred by the business on its purchases to be offset against the VAT it is liable to pay on its sales). For what are now mostly historical reasons, some indirect taxes are called ‘duties’.