Chapter 2

Question 1

Personal allowance definition

Answer 1

a certain proportion of a worker’s income will be ‘tax free’

Question 2

Why does personal allowance exist

Answer 2

This exists to ensure that lower paid workers
pay a lower proportion of tax.

Question 3

national insurance contributions NIC

Answer 3

– these are an additional direct tax charged by the UK government,
paid partly by the worker and partly by their employer.

Question 4

what are NIC’s purpose

Answer 4

Their main purpose is to fund state benefits and
pensions

Question 5

Examples of direct taxation

Answer 5

council tax
corporation tax
business rates
capital gains tax
inheritance tax

Question 6

examples of indirect taxation

Answer 6

VAT
excise duties (additional tax for demerit goods)
Customs duties
landfill tax
climate change levy.

Question 7

How is gambling considered regressive as an indirect tax

Answer 7

Those on lower incomes have a higher tendency to participate in gambling and may pay a higher
proportion of their income on gambling taxes.

Question 8

How does the government justify the existence of regressive taxes

Answer 8

Duties will be charged on goods considered demerit goods and services to reduce their consumption.

The impact of the progressive income tax system more than compensates for any regressive nature of
indirect taxes.