Introduction To Taxation Flashcards
Where do the basic rules of the UK tax system come from?
- Tax legislation
- Case law
What updates tax legislation?
Finance Act
How often is tax legislation updated?
Annually (in the finance act)
Detailed notes on an area of tax
Statutory instruments
Efficiency principle
Cost of collection of tax should be less than the tax raised
HMRC
Controls and administers most UK tax
Doesn’t make the tax rules
Does HMRC issue further guidance to explain and interpret tax law?
Yes
Document providing HMRC’s interpretation of tax law and clarification/more detail on how it should be applied?
Statement of practise
What is given to specific taxpayers to relax the tax legislation?
E.g. undue hardship or anomalies
Technically illegal and being phased out
Extra-statutory concessions
HMRC’s internal working documents
Also made public
Internal guidance manuals
Sources of tax practice
- Statements of practice
- Extra-statutory concessions
- Internal guidance manuals
- HMRC website
- HMRC press releases
Objectives of tax
- Economic objectives
- Social justice
- External influences
Economic objectives of tax
Used to direct the behaviour of businesses and individuals
Neutrality principle
Tax shouldn’t distort choice
What does the current UK tax system encourage?
Individual saving
Charitable donations
Entrepreneurs + investors
Environmental actions
What does the current UK tax system discourage?
Driving petrol and diesel vehicles
Drinking alcohol
Unenvironmantal actions
Equity principle of tax
Tax should be fair and just
Fairness tax principles
- Direct/indirect principle
- Progressive/regressive principle
- Unit/Value principle
- Ability to pay/Benefit principle
Direct/Indirect principle
Direct v Indirect taxes
Direct taxes
Paid by those who generate funds
E.g. income, capital gains, corporation tax
Indirect taxes
Transaction based
Relate to consumption
E.g. VAT
Progressive/regressive principle
Progressive v regressive taxes
Progressive taxes
Increase with income
E.g. income tax
Regressive taxes
Decrease with income
E.g. NI
Unit/Value principle
Unit taxes v value taxes
Unit taxes
Flat rate per item, regardless of value
E.g. beer duty depends on strength not price
Value taxes
% of value of goods/services
E.g. VAT
Ability to pay principle
E.g. income tax
Benefit principle
E.g. NHS
Main external influences to UK tax
EU (Though not now we quit)
International tax treaties
Global concerns
What are most of the UK’s international tax treaties based on?
OECD model tax treaty
OECD
Organisation for economic cooperation and development
Examples of global concerns affecting tax
COVID
Climate change
Types of UK tax (examinable at PTX)
- Income tax
- National insurance
- Corporation tax
- Capital gains tax
- Value added tax
How is income tax collected?
PAYE
What is IT paid on?
Earnings
Both employment and self-employment
Who pays NI?
- All employed or self-employed individuals
- Businesses in relation to its employees
CT
Paid by companies
On all income and gains
Who pays CGT?
Individuals
On the disposal of capital assets
Capital assets e.g.
Land
Buildings
Shares
Antiques
Who pays VAT?
The final consumer
What is the financial year?
1 April to 31 March
What is the tax year?
6 April to 5 April
In what year do corporations pay corporation tax?
Financial year
In what year do individuals get taxed?
Tax year
Who are individuals from a tax standpoint?
Employees
Sole traders
Partners
How often will companies tell HMRC about their tax with MTDfB?
Quarterly
When will MTD be phased in?
From 1 April 2019
Who does MTDfB apply to at the moment?
Businesses
For VAT
Only over the annual registration limit
What is the annual VAT registration limit since 1 April 2017?
£85,000
Who will MTD apply to when finished?
All businesses
(Incorporated and unincorporated)
Self-employed
Landlords
Will MTD have any exemptions when finished?
Yes
Limited
HMRC responsibilities examples
Collecting and administering taxes
IT, CGT, NIC, CT, VAT
Paying & Administering
Universal credit, Tax credits, Child benefit
Collecting student loan repayments
Ensuring minimum wage adherence
Protecting society from:
Smuggling, Tax fraud, Illegal importation of drugs
Does HMRC have various powers to help it meet its responsibilities?
Yes
E.g. ‘Information notice’
2 types of compliance checks on tax returns
- Pre-return checks
- Already submitted returns enquiries
When must HMRC give notice of the intention to conduct a tax return enquiry by?
If filed on time
12 months after the actual filing date
When must HMRC give notice of the intention to conduct a tax return enquiry by?
If filed late
The ‘quarter day’ following the 12 month anniversary of the actual filing date
What are the ‘quarter days’?
31 Jan
30 Apr
31 Jul
31 Oct
What can HMRC do if the tax return isn’t received by the filing date?
Make a DETERMINATION (estimate) of the tax due
And treat this as the amount owed
What is the deadline for making a tax determination?
3 years from the statutory filing date
Is a determination displaced by the eventual calculation of the actual tax due?
Yes
What can HMRC do if it finds info about a taxpayer’s tax affairs after the normal time limit for compliance checks has passed?
Discovery assessment
Raising a discovery assessment time limit: No careless or deliberate behaviour
4 years
From end of relevant period
Raising a discovery assessment time limit: For ‘careless behaviour’
6 years
From end of the relevant period
Raising a discovery assessment time limit: For ‘deliberate behaviour’
20 years
From end of the relevant period
Act of HMRC taking money directly from taxpayer’s bank account
Direct recovery
Conditions that must be met for HMRC direct recovery?
- Issued notices to bank
For taxpayer to not withdraw amount due
For bank to pay HMRC - At least £1,000
- Time to raise objection
- Taxpayer must be left with at least £5,000
Over all their bank accounts - HMRC satisfied that the taxpayer is aware the sum of due
What can a taxpayer make an appeal against?
- Information notice
- Compliance check doc request
- Compliance check amendment
- HMRC right to raise discovery assessment
- Discovery assessment
- VAT assessment
- Imposition of penalty
How must an HMRC appeal be made?
In writing
HMRC appeal deadline?
30 days
HMRC appeal must include?
The grounds for the appeal
Will any tax due during an appeal have to be paid?
Yes
Unless postponed
How are most HMRC appeals settled?
By agreement
What happens if HMRC appeals aren’t settled by agreement?
Heard by the Tax Chamber of the First-tier Tribunal
Individual who assists clients with their tax affairs
Tax Agent
Dishonest conduct by tax agent definition
Tax agent acted dishonestly
Leading to loss of tax
What can HMRC do if it has evidence of a tax agent’s dishonest conduct?
- Issue file access note
To obtain their working papers - Issue conduct notice
- Publish info about the tax agent
Dishonest conduct by tax agents penalty
A fine
Between £5,000 to £50,000
What does the severity of the penalty for a dishonest tax agent depend on?
The tax agent’s behaviour
What are the penalties for a tax agent refusing to comply with a file access notice?
£300 fine
Additional daily penalties of £60
Can a tax agent appeal a file access notice? (And late compliance I assume)
Yes
What is the other consequence of a tax agent being found to be dishonest by HMRC?
They will be in breach of professional ethical guidelines
So disciplinary action by professional body, if a member of one
