A - UK Tax & Administration

Question 1

What is the UK taxation system used to do?

Answer 1

Direct the economic behaviour of businesses and individuals.

Question 2

Give examples of how the tax system may discourage something?

Answer 2

Use of motor vehicles - Fuel duties, less favourable allowances for high emission vehicles.
Use of substances detrimental to health - tax on tobacco and alcohol products.

Question 3

Give examples of how the tax system may encourage something?

Answer 3

Savings & Pensions - Tax incentives on certain types of savings accounts, tax reliefs on pension contributions.
Entrepreneur & investors encouraged - tax reliefs on investment and R&D .

Question 4

What are the different ways of Levying taxes?

Answer 4

Direct vs Indirect
Progressive vs Regressive
Proportional vs Ad Valorem

Question 5

What is meant by Direct and indirect tax?

Answer 5

A direct tax is one which is levied directly on the source of funds e.g. Income tax.\
An indirect tax will likely be based on consumption, ie. VAT

Question 6

What is meant by Progressive and regressive Tax?

Answer 6

A progressive tax will increase in proportion to the source being taxed.
A regressive tax will decrease as the taxable base increases, e.g. NIC.

Question 7

What is Meant by Proportional and Ad Valorem Tax

Answer 7

Proportional Tax remains at a fixed rate regardless of Taxable base e.g. Corporation tax
Ad Valorem is a tax based on the value of the item, e.g. VAT

Question 8

What are the taxes used in the UK tax system

Answer 8

Income Tax
National Insurance Contributions
Corporation Tax
Capital Gains Tax
VAT (Value added Tax)
Inheritance tax.

Question 9

What is HMRC, Her Majesties Revenue & Customs.

Answer 9

An organisation responsible for the administration and Control of all areas of tax within the UK.
Also deals with Universal Credit, Tax Credits, Child Benefits, collection of student loan repayments and monitoring of National Minimum wage.

Question 10

Where is the UK Tax code derived from?

Answer 10

Legislation & Statutes - Laws updated each year by annual finance acts.
This will include statutory instruments which provide detailed guidance on a specific area.
Case Law - Decisions made in Tax cases bought before the courts. Rulings here are binding and provide guidance on interpretation of statutes.

Question 11

What happens where a business or individual is subject to both UK and overseas tax systems?

Answer 11

A double taxation agreement is applied.

Question 12

What is Tax Avoidance?

Answer 12

Using legal methods to rude the individual or companies tax burden.
Any scheme must be disclosed to HMRC.
GAAR enables HMRC to challenge abusive tax avoidance arrangements.

Question 13

What is Tax evasion?

Answer 13

Seeking to pay less tax though the use of illegal methods
Which may include:
Concealing or misreporting records intentionally.
Falsifying tax information.

Question 14

When must a company notify HMRC of char ability to CT and subsequently provide details of TTP chargeable?

Answer 14

Notification of Charge-ability should be made to HMRC within 3 months of the start of the AP.
CT 600 should be filed with HMRC within 12 months of the end of the accounting period.

Question 15

What is the penalty regime for late filing of Corporation tax returns?

Answer 15

• Up to 3 months late - FP = £100, unless 3rd consecutive then £300
• 3 months late - FP = £200, 3rd consecutive = £1,000
• 6-12 months late - FP plus 10% of O/S tax @ 6 months after due date.
• > 12 months late - FP plus 20% of O/S tax at 6 months post due date.

Question 16

Up to what point can corporation tax returns be amended?

Answer 16

• By HMRC - for obvious errors/mistakes, within 9 months of the date the return was actually filed.
• By the Company - For any reason, within 12 months of the filing due date.

For errors identified later than the above time frame a company may apply for overpayment relief up to 4 years from the end of the accounting period.

Question 17

What are the time limits for HMRC to conduct a compliace review on a CT return?

Answer 17

No reason for the review is required however HMRC must advise of information required to carry it out.
If the return is filed on time - up to 12 months from the actual filing date.
If the return is filed late - Quarter day following 12 month anniversary of the filing.

Quarter days are 31’Jan, 30’Apr, 31’July & 31’Oct.

HMRC may also carry out a discovery assessment if information about a tax payers afairs comes available after the above deadlines:
Basic time limit - 4 years
Careless Behaviour - 6 years
Deiberate behaviour - 20 years.