Chapter 1: The Uk Tax system

Question 1

What is the economic purpose of tax?

Answer 1

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

Question 2

What does tax discourage?

Answer 2

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

Question 3

How does tax affect social justices? What are the types of ‘social tax’?

Answer 3

Impacts the accumulation & redistribution of wealth in a country

Progressive taxation
Regressive taxation
Proportional tax
Ad Valorem principle

Question 4

What is progressive tax

Answer 4

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%

Question 5

What is regressive tax

Answer 5

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)

Question 6

What is proportional tax

Answer 6

As income rises the proportion of tax remains constant

e.g 10% of all earning regardless of level

Question 7

What is the Ad Valorem principle

Answer 7

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

Question 8

Which UK body administers the tax system?

Answer 8

HMRC

Question 9

What is income tax

Answer 9

paid by individuals on some of their earnings / investment income

Question 10

What is national insurance contributions (NICs)

Answer 10

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

Question 11

What is capital gains tax?

Answer 11

Paid by individuals when certain capital assets are disposed of (e.g land, buildings & shares, antiques etc…)

Question 12

What is inheritance tax?

Answer 12

paid by executors on the value of the estate of a deceased person or certain gifts over the indivduals lifetime

Question 13

What is corporation tax

Answer 13

paid by companies on their income and gains

Question 14

What is vat?

Answer 14

Paid on the supply of goods & services by the final consumer

Question 15

What is direct tax?

Answer 15

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

Question 16

What is indirect tax?

Answer 16

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

Question 17

What is the purpose of HMRC?

Answer 17

1) ensure there’s money to fund the UK’s public services
2) help families & individuals that need financial support

Question 18

What are the main duties of HMRC commissioners?

Answer 18

1) implement statute law
2) oversee the process of uk tax administration

Question 19

How do taxpayers file their tax returns to HMRC?

Answer 19

Companies= electronically
Individuals = electronically or via post

Question 20

Who is responsible and accountable for self-assessment forms

Answer 20

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)

Question 21

What are the sources of tax law?

Answer 21

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

Question 22

What is statute law?

Answer 22

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

Question 23

What is case law?

Answer 23

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

Question 24

What is HMRC guidance?

Answer 24

explains how to implement the law and their interpretation of it
e.g statement of practicce, ESCs, internal manuals, website and booklets

Question 25

What is a statement of practice

Answer 25

the HMRCs interpretation of tax law
clarifies details of how rules should be applied

Question 26

What is an extra-statutory concession (ESCs)?

Answer 26

RELAXES