Chapter 1

Question 1

What are the types of taxes?

Answer 1

1. Income tax
2. National Insurance
3. Capital gains tax
4. Inheritance tax
5. Corporation tax
6. Value added tax

Question 2

What is the purpose of taxation?

Answer 2

Allows government to raise finance, regulate demand and guide behaviour

Question 3

What is indirect tax?

Answer 3

This is tax collected by an intermediatory from a person who bears the ultimate cost of tax. The intermediatory sends it to HMRC after. E.g. Shopkeeper and customer

Question 4

What is direct tax?

Answer 4

This is tax collected by HMRC directly from the tax payer e.g. Income taxes or corporation tax.

Question 5

What is tax evasion?

Answer 5

This is the illegal and deliberate concealment of the true state of taxpayer’s affairs. Fines and imprisonment apply.

Question 6

What is tax avoidance?

Answer 6

This is the legal utilisation of tax regime to ones advantage through reliefs or living in low tax countries.

Question 7

What are the HMRC Schemes?

Answer 7

HMRC have tax avoidance schemes with anti-avoidance legislation to counter the tax advantages gained by taxpayer. Such as disclosures and general anti abuse rule (GAAR)

Question 8

What happens if a client fails to correct a material error/omission?

Answer 8

• Cease to act for client
• Inform HMRC
• Make a money laundering report to MLRO.
• Be careful not to tip off client

Question 9

What are the consequences of dishonest conduct of tax agents?

Answer 9

• Civil penalty of £50k
• If penalty >£5k HMRC publish details of tax agent
• If tax tribunal agrees HMRC access the work papers of dishonest agent.

Question 10

What year does the tax run in?

Answer 10

From 6th April to 5th April the following year.

Question 11

Who is liable to pay income tax?

Answer 11

Individuals who are residence in the UK.

Question 12

What is the statutory resident test?

Answer 12

Legal test to determine if an individual is a resident or not.

Question 13

What is the automatic non-uk resident test?

Answer 13

Person should not be a resident if he is in the UK for less than :
> 16 days
> 46 days and has not been UK resident during the three previous tax years.
> 91 days of which fewer than 31 days were working in the UK.

Question 14

What is the automatic UK resident test?

Answer 14

> In the UK for 183 days
Has only home in UK
Works full time in the UK and more than 75% of his working days are in the UK.

Question 15

What is the sufficient ties test to determine whether a person is a pervious UK resident?

Answer 15

> Person is a previous resident in or more of the 3 previous tax years (YES)
Person who was not UK resident in any of the 3 previous tax years is not a previous resident. (NO)