Chapter 1: The Uk Tax system Flashcards
What is the economic purpose of tax?
1) Influence economic factors e.g inflation, employment levels, imports/ exports
2) Influence the behaviour of business and individuals
3) Influnces saving habits via tax incentives e.g ISAs
4) Influences charitable donations via tax relief (gift aid)
5) Encourages entreprenaurs &/ investors via tax relief for specific schemes
What does tax discourage?
1) Motoring via fuel duties
2) Smoking & drinking - significant taxes to buy
3) Environmental pollution via landfilltax, climate change levy, CO2 emissions to taxation of company cars
How does tax affect social justices? What are the types of ‘social tax’?
Impacts the accumulation & redistribution of wealth in a country
Progressive taxation
Regressive taxation
Proportional tax
Ad Valorem principle
What is progressive tax
As income increases so does the proportion of tax raised
E.g income tax
up to £37,700 = 20% income tax but up to £150,000= 40%
What is regressive tax
As income increases, the proportion of tax raised falls
Represents a greater proportion of tax income for a low income earner than a higher one
e.g Petrol tax per litre (same regardless of income level of buyer)
What is proportional tax
As income rises the proportion of tax remains constant
e.g 10% of all earning regardless of level
What is the Ad Valorem principle
tax as a % of the value of the item (Ad valorem= add to the value)
e.g VAT at 20% on most goods in the UK
Which UK body administers the tax system?
HMRC
What is income tax
paid by individuals on some of their earnings / investment income
What is national insurance contributions (NICs)
Paid by individuals ( either self employed or employed) on their earnings
Can be paid by businesses too (e.g sole traders, companies) relating to employees
What is capital gains tax?
Paid by individuals when certain capital assets are disposed of (e.g land, buildings & shares, antiques etc…)
What is inheritance tax?
paid by executors on the value of the estate of a deceased person or certain gifts over the indivduals lifetime
What is corporation tax
paid by companies on their income and gains
What is vat?
Paid on the supply of goods & services by the final consumer
What is direct tax?
Paid by taxpayer direct to HMRC
Direct Revenue taxes - e.g income and corporate tax –> direct revenue tax based on income/ profits so the more earned the more received/ paid
Direct capital taxes - e.g capital gains tax/ inheritance tax –> based on the value of assets disposed of either through sale, gift, inheritance
What is indirect tax?
Collected from taxpayer by an intermediary (e.g retail shop) who then pays HMRC the tax
e.g VAT –> consumer pays vat to supplier who pays hmrc
What is the purpose of HMRC?
1) ensure there’s money to fund the UK’s public services
2) help families & individuals that need financial support
What are the main duties of HMRC commissioners?
1) implement statute law
2) oversee the process of uk tax administration
How do taxpayers file their tax returns to HMRC?
Companies= electronically
Individuals = electronically or via post
Who is responsible and accountable for self-assessment forms
The taxpayer themselves are responsible to ensure the correct amount of tax is paid but Officers of Rev & customs can be requested to do the tax calc based on the reported income of individual taxpayers (not companies)
What are the sources of tax law?
1) Statute & case law
2) HMRC guidance
3) Statement of practice
4) Extra-statutory concessions (ESCs)
5) Internal HMRC manuals
6) HMRC website
7) Detailed technical guidance
What is statute law?
Must be abided by
Updated annually by the Finance Act following proposals by the chancellor of the exchequer in the annual budget statement
Issued when detailed notes are needed on an area of tax legislation
What is case law?
decisions made in tax cases brought before the courts
case usually challenges current tax legislation/ argues a certain interpretation should be applied
Rulings are binding and provide guidance on the interpretation of tax
What is HMRC guidance?
explains how to implement the law and their interpretation of it
e.g statement of practicce, ESCs, internal manuals, website and booklets
