Ch1: Introduction to the UK Tax System

Question 1

What are the 3 types of taxes?
Give some examples too.

Answer 1

1. Economic Factor -
   encouraging and discouraging certain activities.
   E.g. ISA (+), Charitable Donations (+), Smoking (-), Alcohol (-)
2. Social Factor -
   redistribution of wealth.
   DIRECT - charged on income, gains and wealth.
   INDIRECT - tax on consumption (e.g. VAT)
   PROGRESSIVE - as tax rises, income rises.
3. Environmental Factors

Question 2

What are the 3 types of Direct REVENUE Taxes?

Answer 2

1. Income Tax
2. National Insurance (NI)
3. Corporation Tax (CT)

Question 3

What are the 3 types of Direct CAPITAL Taxes?

Answer 3

1. Corporation Tax (CT) - both Revenue and Capital.
2. Capital Gains Tax (CGT)
3. Inheritance Tax

Question 4

What is an example of an Indirect Tax?

Answer 4

VAT

Question 5

Process of appeals for Direct and Indirect Taxes

Answer 5

Direct Taxes -
made directly to HMRC.

Indirect Taxes -
made directly to the Tax Tribunal.
1st Tier = most cases.
2nd Tier = complex cases or appeals against decisions in 1st Tier.

Question 6

Define Primary and Secondary legislations.

Answer 6

Primary Legislation -
Acts of Parliament. Sets out basic principles.

Secondary Legislations -
Statutory Instruments. Gives details of how the laws applies.

Question 7

What is meant by Tax Planning?

Answer 7

Reduction of an individuals / companies tax liabilities in accordance with the tax legislations.
E.g. Claiming capital allowances on machinery.

Question 8

Define Tax Avoidance.

Answer 8

Legal minimisation of tax liabilities.

Question 9

Tax Evasion is when…

Answer 9

An individual misleads HMRC by either suppressing information or providing false information deliberately.

Question 10

What is the process of Reporting Suspicions?

Answer 10

If the client DOES NOT disclose/correct error even after telling them:
(1) Inform client in writing that it is not possible for your firm to act for them.
(2) Inform HMRC that your firm is no longer acting for the client.
(3) Report the clients refusal to disclose the omission and the facts surrounding it to the firms Money Laundering Reporting Officer.
(4) Not required to inform HMRC about the clients omission.