Chapter 2 Definitions

Question 1

Direct taxes

Answer 1

Paid by those who generate the funds to pay the tax e.g income tax

Question 2

Indirect taxes

Answer 2

Relate to consumption

Question 3

Progressive taxes

Answer 3

Rise as a proportion of income as that income rises

Question 4

Regressive taxes

Answer 4

Rise as a proportion of income as income falls

Question 5

Unit taxes

Answer 5

Calculated as a flat rate per item, regardless of value

Question 6

Value taxes

Answer 6

Based on a percentage of the value of the item

Question 7

Capital taxes

Answer 7

A tax based on the value of capital assets or wealth, for example capital gains tax (CGT) or inheritance tax (IHT)

Question 8

Transaction-based taxes

Answer 8

Taxes that are incurred due to a specific transaction taking place, for example stamp taxes on the purchase of land, buildings or shares

Question 9

European union

Answer 9

The overall aim of the EU is the creation of a single European market with no internal trade barriers between member states and common policies relating to trade outside the EU

Question 10

Organisation for Economic Co-operation and Development

Answer 10

The OECD’s model tax treaty forms the basis of many of the UK’s international tax treaties

Question 11

Tax year

Answer 11

6 April in one calendar to 5 April in the next calendar year

Question 12

Company

Answer 12

A company is a legal person formed by incorporation under the Companies Act. It is legally separate from its owners (shareholders) and its managers (directors)

Question 13

Financial year

Answer 13

1 April in one calendar year to 31 March in the next calendar year

Question 14

His Majesty’s Revenue & Customs

Answer 14

HMRC was established in 2005 as the UK’s tax and customs authority, responsible for making sure that money is available to fund the UK’s public services and for helping families and individuals with targeted financial support. Through its customs service, it facilitates legitimate trade and protects the UK’s economic, social and physical security

Question 15

Making Tax Digital

Answer 15

MTDfB is a government run project that will fundamentally change the UK tax system by ending the use of tax return in its current form for many taxpayers. It will simplify maintenance of records and accuracy of tax liabilities for businesses and individuals. Under MTDfB, taxpayers will be required to maintain records digitally and make a quarterly return of data to HMRC, with a final adjusting return when figures are finalised. It only applies to VAT right now from April 2019

Question 16

Budget cycle

Answer 16

The process by which UK statutory tax law is developed

Question 17

Finance Act

Answer 17

They amend the tax law each year. This is based on proposals from the Government and presented by the Chancellor of Exchequer in the Budget. The Budget forms the basis of the Financial Bill which is presented to Parliament each year to enact the proposals and bring them into law. This process is complete once the Financial Bill receives the Royal Assent, becoming the Finance Act