1. Introduction To Taxation Flashcards
What is the primary purpose of taxation?
To raise revenue.
What can taxation be used for?
- Redistribution of wealth
- Stabilise the economy
- Influence behaviour
What are the principles of taxation?
- Neutrality (minimise discrimination)
- Efficiency
- Effectiveness
- Equality and Fairness
- Simplicity and Certainty
- Flexibility
What is the tax base?
The value of income or assets on which tax can be imposed.
What is a tax rate?
The percentage that is applied to the tax base to give the tax liability.
What is a progressive tax structure?
The rate of tax increases as the individuals tax base increases. E.g. UK income tax
What is a regressive tax structure?
The rate of tax is inversely proportionate to income.
What is a proportional tax structure?
The rate of tax is unrelated to income and stays the same whatever the tax base. E.g. If income tax was set at 20% no matter what level of income.
What is statue law?
Acts of parliament e.g. annual finance act
What is case law?
Court decisions forgoing a disagreement due to a difference in interpretation of rules.
What are the AAT’s fundamental principles?
- Integrity - straightforward and honest
- Objectivity - Not allow bias
- Professional competence and due care - maintain professional knowledge
- Professional behaviour - Comply with relevant laws and avoid any action that may discredit the profession
- Confidentially- Respect the confidentiality of information
When should information about a client be disclosed?
If there is written authority to do so, legal obligation or HMRC makes a formal request.
What is money laundering?
Making dirty money ‘clean’.
What is a tax practitioner required to do when taking on a new client?
- Carry out a review
- Check their identity
What is the result of not disclosing money laundering?
Fines and imprisonment of up to five years.
What are the steps to take with errors?
- Establish the facts
- Is the irregularity trivial?
• Ask the client for clarity
• Decide whether to continue to act for the client - If not trivial, advise the client to disclose to HMRC
- Client does not agree to disclose:
• Advise in writing of the consequences
• Cease to act for client
• Inform HMRC you have resigned but NOT why - Consider whether a report should be made to the MLRO or NCA
- Carefully consider the response to any professional enquiry letters received.
What is tax planning?
A legal and acceptable way of reducing your tax liability. It is not designed to exploit shortcomings within the relevant legislation.
What is tax avoidance?
A legal but not acceptable way of reducing tax liability. It exploits loopholes within the tax legislation. Disclosure of Tax Avoidance Schemes (DOTAS) is an ongoing HMRC scheme to eliminate tax avoidance.
What is tax evasion?
An illegal and unacceptable way of reducing the tax liability. It involves breaking the law.
What is Residence?
A test of where the taxpayer is living in the tax year. Generally, an individual is automatically a resident in the Uk if they spend 183 days or more in the Uk.
Where are you taxed if your are / aren’t residence in the UK?
Resident in UK - Liable to tax on worldwide income.
Non-Uk resident - Liable to tax on income arising in the Uk.
What is domicile?
Domicile is a more permanent test considering the taxpayers more permanent home.
There are three types of domicile:
-Origin - Usually norm with fathers domicile.
- Dependence - would change if fathers changed.
- Choice - Only after age 16.
What are the conditions for domicile?
Condition A:
• Was norm in the UK
• Domicile of origin was in the UK
• Was resident in the UK for 2017 to 18 or later
Condition B:
•Has been a UK resident for at least 15 years of the 20 years immediately before the tax year.
What is the Income
Tax computation proforma?
NSI. SI. D
Trading Inc. X
Employment Inc. X
Property Inc. X
Saving Inc. X
UK Dividends. X
Net Income. X. X. X
Less: PA. (12,500). (Bal). (Bal)
Taxable Income. X. X. X
