Introduction to Taxation Flashcards
What does the UK tax system encourage?
- Individual saving habits
- Charitable donations
- Entrepreneurs and investors
What does the UK tax system discourage?
- Motoring
- Smoking
- Drinking
Define direct taxes
Paid by those who generate funds
Define indirect taxes
Relate to consumption
Define progressive taxes
Increase with income
Define regressive taxes
Decrease with income
Define unit taxes
Calculated as a flat rate per item
Define value taxes
Added to the percentage value of goods or services
Define income tax
Payable by individuals on their earnings
Define capital taxes
Paid on the disposal of capital assets
Define expenditure taxes
Paid by those who incur expenditure
Define ability to pay principle
Tax should be based on ability to pay
Define benefit principle
Tax should be based on the benefit that the taxpayer receives
Define neutrality principle
Tax should not distort choice
Define equity principle
Tax should be fair and just
Define efficiency principle
The cost of collection should be less than the tax raised
Who pays income tax?
All individuals who are either employed or self-employed
How is income tax collected from the employed?
PAYE
Who pays National Insurance Contributions (NICs)?
- All individuals who are either employed or self-employed
2. Businesses in relation to their employees
Who pays Capital Gains Tax (CGT)?
Payable by individuals on the disposal of capital assets
Who pays corporation tax?
Payable by companies on all their income and gains
Who pays Value Added Tax (VAT)?
Payable by the final consumer on most goods and services
When does the tax year run from and to?
6 April to following 5 April
When does the financial year run from and to?
1 April to 31 March
Do individuals pay tax based on the tax year or financial year?
The tax year
Do companies pay tax based on the tax year or financial year?
The financial year
Who appoints Commissioners?
The Queen
What are the duties of Commissioners?
- To implement statute law
2. To oversee the process of UK tax administration
Who appoints Officers of Revenue and Customs?
The Commissioners
What are the duties of Officers of Revenue and Customs?
- To work in district offices covering all areas of the UK
- To implement the day-to-day work of HMRC
- To act as a point of contact between HMRC and taxpayers
What are the responsibilities of HMRC?
- Collecting and administering income tax, capital gains tax, national insurance contributions, corporation tax, and value added tax
- Paying and administering universal credit, tax credits, and child benefit
- Collecting repayment of student loans
- Ensuring adherence to minimum wage rules
- Protecting society from tax fraud, smuggling, and illegal importation of drugs
Define the Making Tax Digital for Businesses project
- A HMRC project designed to provide businesses with a modern, streamlined system to keep their tax records up to date and provide information to HMRC
- Will initially only apply to businesses for VAT purposes and only if their turnover is above the annual registration limit
What are the features of tax legislation?
- Are law and therefore adherence is mandatory
- Updated each year by the Finance Act
- Include statutory instruments
What are the features of case law?
- Refers to the decisions made in tax cases brought before the courts
- Often the case challenges current tax legislation or argues a certain interpretation of the tax law should be applied
- These rulings are binding and therefore provide guidance on the interpretation of tax statutes
What are HMRC’s main statements of guidance?
- Statement of practice
- Extra-statutory concessions
- Internal guidance manuals
- Press releases
- Leaflets
What is the purpose of HMRC’s statement of practice?
To provide HMRC’s interpretation of tax law by providing clarification or more detail on how it should be applied
What is the purpose of HMRC’s extra-statutory concessions?
- Given to tax specific taxpayers to relax the tax legislation where undue hardship or anomalies would otherwise occur
- However, their legality was successfully challenged in 2005, so they are gradually being withdrawn or made law
What is the purpose of HMRC’s internal guidance manuals?
Produced for their staff but are also available to the public
What is the purpose of HMRC’s press releases?
Provide details of a specific tax issue that has arisen in the year
What is the purpose of HMRC’s leaflets?
Aimed at the general public to provide explanation of various tax issues in non-technical language
