Chapter 1 - Intoduction To Taxation Flashcards
Q: What document updates UK tax legislation annually, following proposals from the Chancellor’s Budget?
A: The Finance Act.
Q: What is the purpose of statutory instruments in UK tax law?
A: They provide detailed notes on specific areas of tax statute.
Q: What role does case law play in tax law?
A: It involves court decisions on tax cases, which interpret tax statutes and often provide binding guidance.
Q: What is the efficiency principle in tax practice?
A: The cost of tax collection should be less than the tax revenue raised.
Q: Who is responsible for administering most areas of UK tax law?
A: HM Revenue and Customs (HMRC).
Q: What are HMRC’s statements of practice?
A: They offer HMRC’s interpretation of tax law, providing clarification on its application.
Q: What is an extra-statutory concession in tax law?
A: A relaxation of tax legislation given to specific taxpayers to prevent undue hardship or anomalies.
Q: Why are extra-statutory concessions being phased out?
A: Their legality was challenged in 2005, so they are gradually being withdrawn or legislated.
Q: What are HMRC’s internal guidance manuals?
A: Manuals produced for HMRC staff, but also made available to the public.
Q: How does HMRC use its website to support tax practice?
A: By providing PDF leaflets aimed at the general public that explain various tax issues in non-technical language.
Q: What is the purpose of HMRC press releases and explanatory notes?
A: They detail specific tax issues that arise throughout the year.
Q: What is the impact of a government’s tax and spending system on a country’s economy?
A: It significantly impacts the economy by influencing various factors like inflation, employment, and trade balances.
Q: What does the neutrality principle state regarding taxation?
A: Taxes should not distort economic choices.
Q: Which tax relief initiative promotes entrepreneurship and investment in the UK?
A: The Enterprise Investment Scheme.
Q: What activities does the UK tax system discourage?
A: Driving petrol and diesel vehicles (via additional fuel duties) and alcohol consumption (through high taxes on alcoholic beverages).
Q: What mechanisms does taxation use to address environmental issues?
A: Landfill tax, climate change levy related to energy consumption, and taxing company cars based on CO2 emissions.
Q: What is the equity principle in taxation?
A: It posits that taxation should be fair, although fairness is often debated politically.
Q: What are the differences between direct and indirect taxes?
A: Direct taxes (e.g., income tax, capital gains tax) are paid by income generators, while indirect taxes (e.g., VAT) are consumption-based.
Q: Explain the difference between progressive and regressive taxes.
A: Progressive taxes increase with income (higher rates for higher earners), whereas regressive taxes decrease as income rises (lower rates for higher earners).
Q: What distinguishes unit taxes from value taxes?
A: Unit taxes are flat rates per item (e.g., beer duty), while value taxes are percentages of the total value (e.g., 20% VAT).
Q: What is the debate surrounding the ability to pay versus the benefit principle in taxation?
A: It questions whether taxes should reflect the taxpayer’s ability to pay (e.g., income tax) or the benefits received (e.g., NHS funding).
Q: Why is awareness of external influences important in taxation?
A: External factors like climate change and fluctuations in oil and food prices can significantly affect living costs and tax policies.
Q: How do the UK’s tax treaties relate to international tax standards?
A: They often align with models established by the Organisation for Economic Cooperation and Development (OECD).
Q: What is Income Tax (IT)?
A: Tax payable by individuals on earnings from self-employment and employment, collected through the PAYE system for employees.
Q: What are National Insurance Contributions (NICs)?
A: Payments required from employed and self-employed individuals and by businesses for their employees.
Q: What is Corporation Tax (CT)?
A: Tax charged on companies’ income and gains.
Q: What is Capital Gains Tax (CGT)?
A: Tax applicable to individuals on the disposal of capital assets, including land, buildings, shares, and antiques.
Q: What is Value Added Tax (VAT)?
A: A tax levied on most goods and services, paid by the final consumer.
Q: What is the financial year for corporation tax in the UK?
A: Runs from 1 April to 31 March of the following year (e.g., FY23 is from 1 April 2023 to 31 March 2024).
Q: What is the tax year for individuals in the UK?
A: Runs from 6 April to 5 April of the following year (e.g., the tax year 2023/24 is from 6 April 2023 to 5 April 2024).
Q: What is Making Tax Digital for Businesses (MTDfB)?
A: An HMRC initiative to modernize tax record-keeping and reporting, requiring businesses to provide information digitally on a quarterly basis.
Q: What is the current application of MTDfB?
A: It currently applies to VAT, but will eventually extend to all businesses, self-employed individuals, and landlords, with some exemptions.
Q: What are the primary responsibilities of HMRC?
A: Collecting and administering IT, CGT, NIC, CT, and VAT; administering universal credit, tax credits, and child benefit; collecting student loan repayments; ensuring adherence to minimum wage rules; protecting against tax fraud and smuggling.
Q: What powers does HMRC have to fulfill its responsibilities?
A: HMRC can issue an ‘information notice’ if a taxpayer does not fully cooperate with informal requests for information.
Q: What are the two types of compliance checks HMRC can conduct?
A: Pre-return checks and enquiries into returns that have already been submitted.
Q: What is the notice period for HMRC to notify a taxpayer about an enquiry?
A: 12 months after the actual filing date for timely returns; for late returns, by the quarter day following the 12-month anniversary.
Q: What happens if a tax return is not received by the filing date?
A: HMRC can make a determination (estimate) of the tax due, which must be done within three years of the statutory filing date.
Q: What is a discovery assessment?
A: A tax assessment raised by HMRC if it receives new information after the normal compliance check time limit has passed.
Q: What are the time limits for raising a discovery assessment?
A:
• 4 years: No careless or deliberate
behavior.
• 6 years: Careless behavior.
• 20 years: Deliberate behavior.
Q: What is the HMRC Payment Support Service (PSS)?
A: A service that assists individuals and businesses who cannot pay their taxes by the deadline, potentially offering a ‘time to pay’ arrangement.
Q: What conditions must be met for HMRC to directly recover tax from a taxpayer’s bank account?
A: Amount due must be at least £1,000; taxpayer must be notified and allowed to object; at least £5,000 must remain in the account.
Q: What can a taxpayer appeal against?
A: Information notices, requests for documentation, compliance check amendments, discovery assessments, VAT assessments, and penalties.
Q: What is the procedure for filing an appeal against HMRC?
A: Appeals must be made in writing within 30 days, stating the grounds for the appeal.
Q: What happens if a tax agent is found to have acted dishonestly?
A: HMRC can access the agent’s working papers, issue a conduct notice, and impose penalties ranging from £5,000 to £50,000.
Q: What is the penalty for a tax agent who refuses to comply with a file access notice?
A: A penalty of £300, plus additional daily penalties of £60.
